Earnings Call Transcript - PYPD Q2 2020

Operator, Operator

Greetings and welcome to the PolyPid Second Quarter 2020 Conference Call. At the time, all participants are in a listen-only mode. As a reminder, this call is being recorded today. I'd now like to introduce your host for today's conference, Mr. Bob Yedid from LifeSci Advisors. Mr. Yedid, you may begin.

Bob Yedid, Host

Thank you all for participating in PolyPid second quarter 2020 earnings conference call. Joining me on the call today will be Amir Weisberg, Chief Executive Officer; Dikla Czaczkes, Executive Vice President and Chief Financial Officer; and Taunia Markvicka, Chief Operating Officer. Earlier today, PolyPid released financial results for the three and six months ended June 30, 2020. 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. 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 FK, 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, substance required by law to update or revise any financial projections or forward-looking statements because of new information, future events, or otherwise. This conference call contains time-sensitive information and speaks only as a live broadcast today, August 19, 2020. With 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 earnings call. Now that we are a public company, we look forward to conducting these calls with investors and analysts each quarter. I will begin today with some brief introductory comments, and then Dikla will provide a detailed update of our business and will review our financial results. We are excited to successfully complete our IPO on NASDAQ at the end of June. We raised $62.8 million in net proceeds from the IPO and added several well-respected new investors. This is a very exciting milestone for our company that further strengthens our balance sheet as we move forward to become a commercial company. Moving on, for those of you new to our story, I would like to take a moment to provide some brief background on our company and technology and review our growth strategy. I joined PolyPid in October 2010 as one of the initial investors to manage the Company together with my partner Dr. Noam Emanuel, who founded PolyPid in 2008, and he is the inventor of our model technology platform that we call PLEX. Our technology focuses on optimizing the local delivery of medicine to significantly improve clinical outcomes, including in surgical settings. Our lead product is focused on optimal local delivery of the broad-spectrum antibiotic in the prevention of surgical site infection (SSI), which will continue to be a global health issue and impose a heavy burden on healthcare systems even with the use of systemic antibiotics, which are the current standard of care for the prevention of SSI. Indeed, systemic antibiotics, while beneficial, are still limited. The reason is that once a patient has a surgical incision, it interrupts the local blood supply and prevents the best penetration and activity of antibiotics into the surgical wound. Therefore, the solution can augment the limited systemic antibiotic activity in the wound by using the local approach. This is where our D-PLEX100 has the potential to be the optimal solution by delivering a constant linear release of the broad-spectrum antibiotic directly into the surgical wound over four weeks to protect the surgical site and prevent infections with minimal exposure to non-relevant systemic targets. D-PLEX100 has generated very promising Phase 2 data indicating significantly higher efficacy than systemic antibiotics. We are now in Phase 3 with D-PLEX100 for the prevention of SSI. Dikla will review our technology platform and clinical programs in more detail shortly. From a strategic perspective, we are focused both on the continued clinical development of D-PLEX100 and our preparations for becoming a fully-integrated pharmaceutical company. We have put in place many building blocks over the past 10 years to position us well to take advantage of the improvement opportunities ahead of us. We have a deep patent portfolio to protect our innovative technology and a GMP-approved state-of-the-art manufacturing facility that we have built. Moreover, we have received key regulatory validation around the potential of our technology in the form of QIDP and Fast Track Designation from the FDA. Our confidence is further driven by the high-quality team we have appointed as well as a talented Board of Directors. Following the IPO, we are now well capitalized to successfully advance our business to the next phase of growth. 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 Czaczkes, CFO

Thank you, Amir, and welcome again to our new investors as well as others who invested in PolyPid in our private financings for joining us on the call. As this is our first earnings call, I would like to take a few minutes to describe the uniqueness of our PLEX technology. First, our product is based on a matrix combining polymers and lipids along with our main component, PolyPid. This combination fully protects the drug to release in a constant linear manner over a prolonged time, which for us means weeks to months, not just hours to a few days as you may see with other technologies. Their release rate dictates the exposure to the drug and the duration, both of which are predetermined to optimize efficacy and safety. Once body fluids penetrate the outer matrix layer, it disintegrates and breaks down to release the medication. This process continuously repeats each time a new outer layer comes in contact with body fluids. Second, D-PLEX100 was optimized to release doxycycline, a broad-spectrum antibiotic active against both gram-negative and gram-positive bacteria with decades of known efficacy and safety. The D-PLEX platform allows for a constant linear release of the drug and maintains a high local concentration of doxycycline within the surgical incision for up to four weeks, which is sufficient to eradicate bacteria, including resistant ones during the sensitive wound healing period. Finally, it is important to understand that with D-PLEX100 we are able to achieve these high local concentrations with relatively small doses of doxycycline overall, which is not achievable with systemic delivery without risking organ damage or toxicity to the patient. The placement of D-PLEX100 directly into the surgical site not only avoids the dilution of the antibiotic in systemic circulation when administered systemically, but also overcomes limited penetration of the antibiotic into the incision due to interruption of blood flow. The study released at the incision site over several weeks results in the safety and efficacy which our trials have shown to date and that we anticipate will be demonstrated in our Phase 3 trials. With that, let's turn to the status of our pipeline. We intend to conduct three Phase 3 trials with D-PLEX100, including two in soft tissue and one in bone tissue surgeries. We believe this Phase 3 suite of trials supports our strategy for a broad label for the prevention of SSI. We recently enrolled our first patient in the SHIELD I trial, which is the first of our two Phase 3 clinical trials for the prevention of SSI in abdominal surgeries or soft tissue. Our plan is to enroll 600 to 900 patients among 60 centers in the U.S., EU, and Israel. Following the enrollment of the first 500 patients, the study design provides for blinded sample size re-estimation. We anticipate the top line results from SHIELD I will be available in the second half of 2021. In late 2020, we expect to initiate a second Phase 3 trial in abdominal surgery, SHIELD II, which will include more minimally invasive corrective procedures. This second trial will enroll approximately 900 to 1,400 patients across the same number of centers. Our Phase 3 trials are based on the positive results we observed in our Phase 2 trial, which studied 201 patients in a two-arm trial with a 30-day endpoint for the reduction of infection rates and mortality, and safety endpoint at 60 days. I would like to point out that about 75% of those patients in the trial had colorectal resections for cancer. Colorectal surgery is one of the surgeries with the highest rate of SSI because the contamination risk comes from both exposure to bacteria from external factors as well as from bacteria in the GI tract. The results were compelling as the use of D-PLEX100 showed a 59% reduction of the primary endpoint of SSIs and mortality at 30 days versus the standard of care of systemic antibiotics alone, which was statistically significant with a p-value of less than 0.01. There were five deaths among the standard of care treated patients and zero in the D-PLEX100 treated patients throughout the 60 days. Overall, D-PLEX100 was well tolerated and no drug-related serious adverse events were observed. Importantly, no negative impact on wound healing was seen. Dr. Anthony Senagore, a colorectal surgeon and medical advisor to PolyPid, presented key results from this Phase 2 trial at the American Society of Colon and Rectal Surgeons conference held virtually on May 16 and 17, 2020. The other significant indication for D-PLEX100 is the prevention of SSIs in bone tissue, such as the sternum in open-heart surgery. In our randomized Phase 1b/2 trial of 81 patients undergoing open-heart surgery, there were no infections in the 58 patients treated with D-PLEX100 compared to a 4.3% infection rate in the standard of care arm. We initiated our Phase 3 bone model trial in open-heart surgery last February 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 U.S., EU, and Israel. Moreover, a significant commercial opportunity exists for the prevention of SSI. Based on industry sources, out of the 30.2 million hospital in-patient surgical procedures conducted in the U.S. in 2016, there are around 14 million procedures, or about 45% of all in-patient 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, or those in orthopedic or cardiac procedures with unacceptable rates of morbidity and mortality. Based on our clinical studies to date, we believe the data demonstrates an improvement in efficacy and safety over the standard of care and will strongly support a value proposition within the existing TRG payment for the selected surgical procedures. This includes improved outcomes such as a reduction in surgical infection, leading to shorter length of stay, fewer re-interventions or readmissions, lower morbidity and mortality, resulting in overall improvement in hospital quality measures. In addition, the QIDP designation gives us additional opportunities to qualify for an add-on payment in the in-patient setting. This substantial market opportunity combined with the unmet medical need I discussed earlier, is representative of why we are so excited about PolyPid's future prospects. As Amir mentioned, we have an extensive intellectual property portfolio, with 90 issued patents globally, two allowed patent applications, and 33 pending patent applications protecting our technology and products. Under the FDA QIDP program, which is designed to speed the development of novel drugs against important pathogens, PolyPid will be able to take advantage of certain incentives, including FDA priority review and our regulatory approval pathway provides for a total of eight years of market exclusivity, which is another layer of protection that complements our patent following market approval. Additionally, Fast Track Designation allows for early and frequent communication with the FDA throughout the entire drug development and review process and provides for a rolling review for D-PLEX100 NDA. Moving onto the balance sheet, as of June 30, 2020, the Company had cash, cash equivalents, and short-term deposits of $81.7 million compared to $27 million as of December 31, 2019. As Amir mentioned, we were thrilled to complete our IPO in June, through which we raised approximately $62.8 million in net profits. Cash use from operations for the first six months of 2020 was $7.5 million. We believe our strong cash position will allow us to complete our first Phase 3 trial, SHIELD I, in abdominal soft tissue infection and to initiate and conduct a second abdominal surgery study, SHIELD II, to prepare for the submission of an NDA for the FDA. Now let's turn to our income statement. For the three months ended June 30, 2020, the Company had a net loss of $17 million compared to a net profit of $0.3 million in the three months period ended June 30, 2019. R&D expenses for the three months ended June 30, 2020, were $4.3 million compared to $3.5 million in the same three-month period of 2019, as spending increased due to the proliferation of the Phase 3 clinical trial of D-PLEX100 for the prevention of SSI in abdominal surgery. General and administrative expenses for the second quarter of 2020 were $2.9 million compared to $1.2 million in the second quarter of 2019, as costs increased due to the Company's IPO and an increase in non-cash-based compensation. GAAP net loss attributable to ordinary shares for the three months ended June 30, 2020, was $19.1 million compared to a GAAP net profit of $0.3 million for the same three-month period of 2019. On a non-GAAP basis, our net loss attributable to ordinary shares for the three months ended June 30, 2020, was $4.8 million. The non-GAAP net loss includes a reevaluation of our convertible preferred share warrants liability following the increase in fair value due to the IPO. We will now open the call to your questions. Taunia Markvicka, Chief Operating Officer, in the U.S. will join Amir and me to answer your questions.

Operator, Operator

Thank you very much. Our first question comes from Gary Nachman from BMO Capital Markets. Please go ahead.

Gary Nachman, Analyst

Hi guys. Congrats on your first earnings call. So, how is enrollment going so far for the first Phase 3 abdominal study? How much are you being impacted by COVID? And then, how many sites do you have activated and where are those sites? And how long before you can get all 60 sites up and running?

Dikla Czaczkes, CFO

Hi, Gary, thank you. I appreciate your participation. So, as you all know, we opened the trial about a month and a half ago, and up until now, it is running as planned. The plan is overall to open 60 centers in different countries globally: U.S, Europe, and Israel, which relates to the second half of your question about COVID. This should also be helpful in terms of COVID, if in some countries, there is a second wave. At some point, we will have enough centers and diversity in terms of countries, as well as the number of centers to overcome this, and things are going as planned. We're first opening the centers in Israel, in Europe, and later on, we'll be joined by the U.S. The first few weeks are more dedicated to opening the centers, but also patients are gathering, and up until now, since we spent a lot of time preparing for this trial, we are quite confident that we are on track based on our plan. We have a very detailed stand, looking at the number of patients that need to be recruited, and we are on track there.

Gary Nachman, Analyst

And then, are you on track to restart the cardiac Phase 3 study by the end of the year? And to talk about the rolling NDA for D-PLEX100, first, you're going to start with abdomen, then you'll have the cardiac after supplemental? And how much Fast Track speed will potentially set up?

Dikla Czaczkes, CFO

So, the Fast Track that we announced this quarter that we received on the abdominal will allow us to submit the NDA on a rolling basis, which is a very good potential shortening of time. The idea is that you tend to submit the NDA based on the two abdominal trials, and the cardiac trial will then be submitted post-approval or as a supplement to the NDA. Based on our IPO that we were planning, as we indicated in our prospectus, we weren't thinking about pursuing the journal because we stated we need additional cash to proceed. Since we did raise more than we expected, more than the $50 million we initially submitted for, we are evaluating now the right timing to reinitiate the sternal trial. It's not really to open it because the trial is ongoing, but more to reinitiate the recruitment and the opening of additional centers. We will give an update towards the end of the year regarding where we stand on that.

Gary Nachman, Analyst

And then the last question, should we expect an update on the oncology program before the end of the year, you had mentioned that during the IPO? And what's a reasonable timeframe for when you might start clinical studies and what those might look like?

Dikla Czaczkes, CFO

So, yes, we do expect to be able before the end of the year to provide more color and detail on the oncology program. As we said in the past, we have very encouraging preclinical data, and we expect to be able to give additional information on this program, including timeline focus event.

Gary Nachman, Analyst

Okay. And it's possible that that could happen sometime in 2021? I know it's early, and I don't want to hold you to it, but just to let people know.

Dikla Czaczkes, CFO

Yes, if we were in a position to give the timeline, we would publish it now. It more depends on the type of models that we decide to use in terms of the type of toxicity that the FDA will require from us. On that basis, what kind of IND package we will need to start the first event. So if it's possible that it will be within 2021, the answer is yes, it is possible. Since we're in the process of preparing all of this material and understanding the requirements, it’s hard to say today what exactly the timeline is, but it's definitely possible.

Operator, Operator

The next question we have today comes from Balaji Prasad from Barclays. Please go ahead.

Balaji Prasad, Analyst

Amir and Dikla, congratulations on your first earnings call. Glad to be a part of it. Maybe just a couple of questions from me. Firstly, I know that you presented recently at ASCRS, I want to see what kind of reactions you have from there, any feedback which influences your next step of clinical or commercial actions from those meetings and the presentation? And secondly, could you also speak a bit about how the second phase of your Phase 3 trials would look like in late 2020? Thanks.

Dikla Czaczkes, CFO

Thank you for joining our call today. Taunia, would you like to take the first part of the conference and I will relate to the study?

Taunia Markvicka, COO

Sure. Thanks, Balaji. So, the feedback, obviously, you know that the presentation at the American Society of Colorectal Surgeons Annual Meeting was a virtual meeting and presentation. I think that the feedback that our speaker had received was generally exciting; folks have been encouraged and looking for an opportunity to directly address the surgical site, and surgical site infections remain an area of keen interest among colorectal surgeons. So, I would say, the feedback we've got from behind the scenes was a positive reaction in the virtual format that we presented.

Dikla Czaczkes, CFO

And regarding your second question about the Phase 3 abdominal, so as we indicated, this Phase 3 is between 600 to 900 patients, and we are running it with a primary endpoint of reduction of infection and mortality, which is similar to what we had in our Phase 2, the 201 patients, again, randomized, double-blinded, multi-center. We are looking to show statistically significant reduction in the primary endpoint where we are following those patients for 30 days for the primary endpoint and an additional 60 days for safety purposes. We are also looking at other parameters to see supportive of our commercial strategy in terms of potential health economics. The second Phase 3 will have a more substantial portion of minimally invasive operations, and because of that, it’s a larger trial in terms of size.

Operator, Operator

The next question we have comes from Elliot Wilbur from Raymond James. Please go ahead.

Elliot Wilbur, Analyst

Congratulations on getting across the IPO finish line. First question, I wanted to ask is with respect to secondary endpoints in the Phase 3. Obviously, we've all been very, very focused on the primary endpoint that seems rather well defined, but just let to get your thoughts impressions on some of the secondary endpoints, things that maybe we haven't thought about as much in terms of wound healing, scarring, and issues as such that you think may be important in terms of differentiating asset that have gotten a little bit less attention perhaps than the infection rate itself?

Dikla Czaczkes, CFO

Thank you, Elliot, you raised an excellent point. While we haven't established the secondary endpoints, you are addressing exactly what we are examining concerning wound healing and safety, particularly as it relates to scarring. We are currently evaluating this. We are also assessing the use of IV antibiotics, where our Phase 2 trials have shown a significant reduction in their usage. This is another important factor we want to demonstrate. In certain cases within our Phase 2 trial, we observed that patients, even those not clinically defined as having infections, still experienced benefits such as fewer hospital readmissions, shorter lengths of stay, and reduced use of IV antibiotics. All of these factors are being taken into account and collected.

Elliot Wilbur, Analyst

Okay. And then just one additional question here, as I think about SHIELD I being rolled out, how standard is the actual standard of care in the Phase 3 trials? I know that the protocol says something along the lines that it was institution specific; I assume that there's a fairly narrow range of treatments that are sort of defined as standard of care. But just curious if you could weigh in with any commentary in terms of the ranges of other antibiotic regimens that are allowed to be used in the standard of care or whether or not it allows for oral versus intravenous? Just wondering how much variability there may be in the SSI parameters in the clinical trial protocol?

Dikla Czaczkes, CFO

Sure, so the standard, there are things that are very uniform, and things that are more variable between different centers and countries. So, everyone is using what we call systemic antibiotics, whether it's IV or PO, and we allow for that. We allow for that both on the standards of care and in the treated arm. This is a standard of care that is very much uniform between different countries, geographies, as well as different centers. This is something that is part of the protocol. You do see some things that are not so much uniform, usually line of bowel preparation. There are places where it's very customary and places that it's less customary. And here, we give some more variability. We allow for bowel prep. What we are avoiding is bowel prep with antibiotics because then we think this could be diversity to the patient population. So patients can get systemic antibiotics, whether IV or oral, depending on the type of surgeon using this specific center. We do allow for bowel prep but without a pre-use of IV antibiotics for a prolonged period prior to the surgery. So, there is just one shot prior to this surgery, usually about half an hour to an hour prior to the incision.

Elliot Wilbur, Analyst

Okay. Thanks. And actually, I have one more question. I don't think this was asked earlier, but obviously, a little early to comment in terms of what the Fast Track Designation may ultimately do for the timeline and the path to ultimate NDA submission, but just wanted to get your thoughts in terms of what the additional optionality may be in terms of more frequent interactions with the agency or interactions at specific points in time along the development pathway that maybe you didn't previously consider during the course of the road show? And I guess, I won't really what I'm getting at is that does this maybe make it possible to sit down and discuss the NDA with the agency around the time point of that initial sample size validation, opening up potentially earlier filing than previously expected?

Dikla Czaczkes, CFO

Thank you, Elliot. So, there are a couple of points here that I think are worth mentioning. Generally, and not specifically for PolyPid, the Fast Track allows for more frequent interaction with the FDA as well as the NDA rolling on the basis of the rolling submission. And this is something that we will take advantage of, and we've already, I think, taken advantage of more frequent communication and the ability to ask questions as we go along. We do have the possibility to go to the FDA after the first Phase 3 after SHIELD I, if the data is robust enough, and ask for an NDA based on one trial. This is a possibility and it goes from the tests we are on and also the QIDP. We don't have any guarantee that even if the data is robust, they will allow us to submit an NDA, but this is exactly the type of communications we will be able to have with the agency due to the QIDP and the Fast Track once we have additional data. So, it is possible.

Operator, Operator

Thank you very much. There are no further questions in the queue at this stage. Please continue.

Amir Weisberg, CEO

Thank you for joining our first quarterly conference call as a public company. I would like to reiterate how excited we are about the Company's Fast Track designation and completion of our IPO. We are grateful to our team members and all of our external partners for their commitment to our mission and their cooperation, particularly during this uncertain time of the COVID-19 pandemic. Thank you.

Operator, Operator

Thank you very much. That does conclude the conference for today. Thanks for attending. You may all disconnect. Speakers, please stand by.