Processa Pharmaceuticals, Inc. (NASDAQ:PCSA) Q3 2022 Earnings Call Transcript

Processa Pharmaceuticals, Inc. (NASDAQ:PCSA) Q3 2022 Earnings Call Transcript November 12, 2022

Operator: Greetings, and welcome to Processa Pharmaceuticals third-quarter 2022 earnings call and corporate update. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. It is now my pleasure to introduce Jim Stanker, Chief Financial Officer. Thank you, sir. You may begin.

Jim Stanker: Thank you. And welcome to Processa’s third-quarter 2022 results and clinical update conference call. We are very pleased to have recently reported positive results from our ongoing Phase 1B trial for PCS6422 in GI cancer and from our recently completed Phase 2A trial for PCS12852 in gastroparesis. Dr. Young will discuss these later during the call. Joining me on the call today are our Chief Executive Officer Dr. David Young; and our Chief Operating Officer, Mike Floyd. Shortly before this call, we filed our September 30, 2022 Form 10-Q. And this morning, issued a press release containing preliminary results from our PCS12852 gastroparesis trial. I want to remind everyone that a PowerPoint presentation will accompany Dr. Young’s prepared remarks.

To view the PowerPoint slides, please go to the Investor Relations section on our website or our earnings press release and click on the webcast link to follow along. I will start our call by reading the safe harbor statement. This statement is made pursuant to the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of the historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Although we believe expectations and assumptions reflected in the forward-looking statements are reasonable, we can make no assurances that such expectations will prove to be correct.

Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties. For a discussion of such risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed on our annual report on Form 10-K. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances. At this time, I will touch briefly on our published financial results, then turn it over to Dr. Young to provide an update on our drug development activities which will be followed by Q&A.

Our cash balance at September 30, 2022 was $9.1 million. We believe this will be sufficient to complete our three ongoing clinical trials and fund our operations into the third quarter of 2023. During the nine months ended September 30, 2022, we spent cash for our three clinical trials and in our operations of $7.1 million. This is significantly less than our GAAP net loss of $14.4 million due primarily to the effect of noncash stock-based compensation, application of amounts we had prepaid to our CROs, and amortization. We continue to be focused on conserving our cash and using it to advance the drugs in our pipeline. One way we are doing this is by having our executive officers invest the majority of their base salary for shares of our common stock.

During the nine months ended September 30, 2022, our executives as a group acquired 305,617 shares of our common stock with a fair value of approximately $916,000. Not only does this conserve precious cash, but it aligns our executive team with our shareholders and provides them with significant potential upside. As I noted, our GAAP net loss for the nine months ended September 30, 2022, was $14.4 million or $0.90 per share compared to a net loss of $8.2 million or $0.54 per share for the same period of 2021. The increase in our net loss relates primarily to increased clinical trial costs we incurred in our three clinical trials. For the nine months ended September 30, 2022, we incurred $8.3 million in research and development costs, an increase of $3.5 million when compared to the same period of 2021.

We anticipate clinical trial costs will be fairly consistent for the rest of the year as our trials continue, and we fund development activities for the other drugs in our pipeline as David will discuss. During the nine months ended September 30, 2022, our general and administrative expenses totaled $6.1 million compared to $3.4 million for the same period of 2021. The increase related primarily to increases in stock-based compensation costs along with other operating and consulting costs. We allocated $6.1 million of noncash compensation cost between our R&D and G&A, with the majority being recorded as G&A. Our net cash used in operating activities during the nine months ended September 30, 2022, increased by $1.1 million to $7.1 million compared to $6 million for the same period in 2021.

As of September 30, 2022, we had 15.9 million common shares outstanding. That concludes my remarks. I’ll turn the call over to our CEO, David Young. David, please go ahead.

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David Young: Thank you, Jim. Good evening. Thank you for joining us. Prior to the filing of our 10-Q for the third quarter, we had some great news on two of our drugs, which has been shared in press releases over the last eight days. I hope that you saw our press release on our cancer drug Next Generation Capecitabine, formally called 6422 last Tuesday, and the press release this morning on 12852, our drug for the treatment of gastroparesis. This evening, what I like to do is to concentrate on these two drugs, so that you understand them a little more and can appreciate how the results from each drug increases the probability of success for an FDA new drug application. First slide, slide 3, please. This slide summarizes our findings for Next Generation Capecitabine and 12852.

The first three bullets are for the Next Generation Capecitabine or NGC, as I’ll call it from now on, while the bottom three bullets are for 12852. For NGC: first, in the ongoing Phase 1B trial, Processa has successfully identified NGC dosage regimens and 5-FU exposures that were well tolerated as well as NGC regimen and 5-FU exposures that had dose-limiting side effects. Second, the timeline for the formation of new DPD was also found to be approximately 24 hours to 72 hours after the 6422 dose was administered, while NGC potency was increased to 50 times greater than reported for FDA-approved capecitabine. And lastly, in 2023, Processa plans to initiate an efficacy/safety Phase 2B trial following FDA’s Project Optimus Initiative after meeting with the FDA.

For 12852, the proof-of-concept Phase 2A trial in gastroparesis patients has been completed with the results showing that the change in gastric emptying rate after 28 days of treatment on 0.5 milligrams of 12852 was statistically better than placebo treatment at a p-value less than 0.1. Second, the change in gastroparesis symptoms for 12852 versus placebo is expected by the end of the year. And lastly, Processa plans to initiate an efficacy/safety Phase 2B trial in 2023. Next slide, please. Let’s look more at Next Generation Capecitabine or NGC, which we previously called 6422. NGC can be used in many cancers with a market opportunity over $1 billion in the US. Next slide. To provide a little background for NGC, 5-FU is a cancer drug approved in 1962 and is administered intravenously while capecitabine is an oral pro-drug of 5-FU approved in 1998.

Capecitabine and 5-FU are presently the most widely used cancer chemotherapy agents in the US and worldwide. Approximately 30% of the patients receiving capecitabine do not respond. And another 30% are partial responders, with many of these non-responders and partial responders having adverse events that may require a modification of their regimen, dose interruption, or possibly even a discontinuation of treatment. As you can see from the diagram on the left, capecitabine, after oral administration, is metabolized to 5-FU. Approximately 70% to 80% of 5-FU is then metabolized by the DPD enzyme to catabolites, to the right. And approximately 10% to 20% to the anabolites, to the left. Less than 10% of 5-FU is typically eliminated through the kidney.

The catabolites formed on the right have no anti-tumor properties but do cause side effects and may require a modification of their regimen, dose interruption, or discontinuation. Anabolites, to the left, can kill replicating cells, which include cancer cells and normal healthy cells. The side effects associated with anabolites such as neutropenia, mucositis, and severe GI distress also may require dose modification or discontinuation of treatment. Next slide. 6422 is an irreversible inhibitor of DPD that prevents 5-FU to be metabolized to catabolites, to the right in the diagram. This results in 5-FU being metabolized to anabolites, to the left in the diagram, while also being eliminated systemically through the kidney probably greater than the typical 5% to 10%.

6422 has no anti-cancer properties. And at the low doses that we are administering, 6422 should not cause any side effects. After administering 6422, the DPD activity in the body is not only dependent on the presence of 6422 and its irreversible binding to DPD, but the DPD activity is also dependent on the formation of new DPD. If 6422 are not present, the new DPD form can metabolize 5-FU to its catabolites. Next slide. Let’s now look at the findings from our trial thus far. Remember, Next Generation Capecitabine regimens are a combination of the 6422 regimen, as an example, 6422 is only administered on day one; and a capecitabine regimen, which in our example, is administered on day two through eight. In our example, the cycle then repeats itself after 14 days.

This is one example, but there are other possible combinations of 6422 regimens and capecitabine regimens that would result in different 5-FU and 5-FU catabolites exposure profiles. From the different NGC regimens evaluated, the timeline for the formation of new DPD is approximately 24 hours to 72 hours after the 6422 dose, while NGC potency was increased to 50 times greater than reported for FDA-approved capecitabine. We have also successfully identified NGC dosage regimens and 5-FU exposures that were well tolerated as well as NGC regimens and 5-FU exposures that have dose-limiting side effects. And as stated before, Processa plans to initiate an efficacy/safety Phase 2B trial following FDA’s Project Optimus Initiative after meeting with the FDA.

The purpose of evaluating multiple regimens in this Phase 2B trial will be to evaluate both efficacy and safety, not just safety; and to select an optimal dosing regimen to achieve a better balance between efficacy and safety, rather than merely using the maximum tolerated dose. Next slide. Since FDA Project Optimus Oncology Initiative is relatively new, I have provided one slide briefly describing the principles behind it. I will not address it except to say that the aim of this approach is to determine the optimal dosage regimen with the best balance between efficacy and safety. This approach is very important for combination products, which is why the approach fits Next Generation Capecitabine so well. Next slide. The latest news released this morning is our initial findings of 12852 in gastroparesis patients.

Next slide. Gastroparesis is a condition that affects normal spontaneous movement of the muscles in the stomach. The stomach does not move food down to the small intestine in the normal manner. The typical symptoms are for example, nausea, vomiting, too much bloating, too much belching, pain in your abdomen, and heartburn. Next slide. At present, there is only one drug that is approved for the treatment of gastroparesis. Metoclopramide, a dopamine D2 agonist, has a black box warning and serious neurological side effects. Its use in gastroparesis is limited to only 12 weeks. Other drugs used off-label have been 5HT4 receptor agonist, which binds to many other receptors and can have serious side effects because of this off-target binding. Side effects such as cardiovascular side effects and even suicidal ideation.

One of these drugs was efficacious in gastroparesis but was pulled off the market in 2000 because of its cardiovascular side effects, which were not related to its 5HT4 agonist activity. Next slide. 12852 is a more potent selective 5HT4 receptor agonist than 5HT4 agonists on the market. It enhances both GI motility and GI secretion helping to move food from the stomach to the small intestine. 12852 may also be effective with other GI motility disorders. Next slide. There have been two clinical trials evaluating the effects of 12852 on stomach motility and gastric emptying. The first study was in healthy volunteers with constipation and functional constipations conducted in South Korea. This study successfully demonstrated 12852 effects the gastric emptying rate.

The second study is our US study. Our press release this morning announced that upon completing our proof-of-concept Phase 2A trial in gastroparesis patients with only six to nine patients in each treatment group, the trial showed that for six patients receiving 0.5 milligrams for 12852 compared to eight patients receiving placebo, the gastric emptying rate was significantly different at a p-value less than 0.1. In addition, we had no unexpected side effects including cardiovascular side effects or serious side effects. We expect to receive the analysis of the gastroparesis symptoms before the end of the year. Remember, however, given this is a proof-of-concept study with only six to nine patients per group, we are only looking for a strong trend in symptom efficacy in order to guide us in the Phase 2B 12-week efficacy/safety trial that we plan to initiate in 2023.

Next slide. For NGC and 12852, I hope you can see how we are moving closer to not only meeting FDA requirements before running a pivotal trial, but we are also collecting data to increase our likelihood of having a successful pivotal trial by selecting the best dosage regimen and designing the best trial to demonstrate optimal efficacy and safety. Next slide. The next five to six slides not only provide a short corporate overview of Processa but also provide information about a common question that I received. The question is, what makes Processa different than the many other biotech companies? If you’re asking the same question, please look at the last five to six slides. And then I hope you will see that there are many reasons why we are different from other biotech companies and why we are a far better investment than other companies.

I want to remind our investors that like you, Processa is an equity play for the Processa team. Our goals are aligned with yours: increase the value of Processa. This concludes my remarks, I will now ask the operator to open the phone lines for Q&A. Operator, can you please poll for questions?

Operator: And first, earlier, the company received an email asking to explain the significance of the p-value being less than 0.1. I’ll now direct this question to the team. What is the significance of this statistical data?

David Young: Thank you, operator. The p-value is a statistical measure that indicates whether or not the effect of 0.5 milligrams of 12852 in our proof-of-concept trial was significantly different from the placebo. Since it was less than 0.1, what this really means is that less than 10 — there’s a less than a 10% probability that the results occurred by chance. That means — again, I’ll repeat that, there is less than a 10% probability that the results occurred by chance. The fact that we had a statistical difference at a p-value of less than 0.1 is really good. Remember, this was a proof-of-concept study. It wasn’t a study that we wanted to find statistical significance for a large pivotal study. So instead, what we’re looking for in proof-of-concept studies are trends, strong trends.

This study wasn’t designed for that large study. Instead, what we did is we designed it for that trend. And we saw it. We only had six patients in the 0.5-milligram group of 12852 and eight patients in the placebo group, a very small number of patients in each group. Yet, we saw that p-value of less than 0.1, which really told us that — in fact, was less than a 10% probability, that this is by chance. So the probability is this really occurs. Thank you, operator.

Q&A Session

Operator: Francois Brisebois, Oppenheimer.

Francois Brisebois: Hi. Thanks. Appreciate the color on the p-value there. And then I was just wondering in terms of the DPD inhibition and the length, I think you showed here, one of the slides, 24 hours to 72 hours of irreversible inhibition. I’m just wondering, what’s optimal? What’s ideal? How long would you like to see the inhibition? Just any data or thoughts around that?

David Young: Hi, Frank. Good question. So one of the things that we have to remember is that the range of 24 hours to 72 hours is variable. So we had some patients that it was earlier, some patients that was later. And it’s not like it’s exactly 48 hours. It’s not that way. The variation across the patients is wide. Given that, what we would like to have is we would have to like to have it longer, a little bit longer. Closer to 72 hours would be great for us. If it’s not, we just have to figure out how to deal with it in terms of our dosing.

Francois Brisebois: Okay. And then in terms of the Optimus project and going away a little bit from the MTDs, the maximum tolerated doses. I was just wondering, is that something that in order to find the right dose for the right patient, is that something that could potentially require multiple phases?

David Young: Okay. So we’ve been using the concept of Project Optimus looking at the dose-response relationship in all other drugs, in all other indications. Cancer is the only one that’s not like this. All other therapies, you say, okay, what’s the balance between efficacy and safety? And you’re always looking for that regimen that gives you efficacy and safety but the right balance. If you have great efficacy, but you have terrible safety, that’s not so good. If you could decrease the efficacy a little bit, but have no safety issues, that’s fantastic. So there’s that balance that we’re trying to always reach. And we do that with all other indications. This is the one indication we don’t do it for. So the question is, do we do multiple Phase 2Bs in other indication?

No, we don’t typically do that. Typically, we do one Phase 2B and then we go to Phase 3. So I think — I believe that cancer is going to be oncology the same way. We’re going to be doing — and our plan is to do one Phase 2B and then go to pivotal trial. And I think that should work out for us.

Francois Brisebois: Okay. Great. And then on the gastroparesis, can you just maybe help us understand the magnitude of the efficacy seen here? Although it was a proof-of-concept, but just the magnitude, in terms of whether or not you have a healthy subject or not a healthy subject. Is that something that varies a lot once the subjects aren’t so healthy?

David Young: Yes, it varies a lot, I mean if the subject has gastroparesis. Even for mild gastroparesis to severe gastroparesis, there is a large difference in terms of gastric emptying rate, a large difference. And so that’s why our study, we’re looking at more moderate to severe patients, because there’s a patients who really need something. A lot of the mild gastroparesis patients for example, well, yeah, they’ll have gastric emptying problems, and they’ll have some of the side effects, but they’re not extreme. They can deal with it with antacid. They can deal with other things in their diet. But when you’re moderate to severe, your gastric emptying is so slow that all — the pain is big, the belching could be big. And all these other GI or stomach issues become real, a real problem, because it is so slow.