Greetings and welcome to the Processa Pharmaceuticals Year-End 2022 Earnings Call and Corporate Update. [Operator Instructions] 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..

Thank you, and welcome to Processa's 2022 year-end results and corporate update conference call. Joining me on the call today is our Chief Executive Officer, Dr. David Young. Shortly before this call, we filed our year-end Form 10-K. I will briefly touch on our published financial results, and then turn it over to Dr.

Young to provide an update on our drug development activities. I want to remind everyone that a PowerPoint presentation will accompany Dr. Young's prepared remarks. To view the PowerPoint presentation, please go to the Investor Relations section on our website or to our earnings press release and click the webcast link to follow along.

I'll start by reading the Safe Harbor statement. This statement is made pursuant to the Safe Harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995.

All statements made on this call with the exception of 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 these 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 in 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, and circumstances. Our cash balance on December 31, 2022 was $6.5 billion.

Subsequent to year end, we raised $6.4 million from the sale of 8.4 million shares of our common stock through a combination of financing vehicles, including a registered direct offering.

These funds have strengthened our balance sheet, and we believe the cumulative $12.9 million will be sufficient to complete our active clinical trials and fund our operations into the third quarter of 2024. As a pre-revenue company, we are careful with our cash, using it to advance the drugs in our pipeline to their next value-producing milestone.

We used $9.6 million during the year ended December 31, 2022, to fund our three clinical trials and operations. This represented an increase of $800,000 when compared to the $8.8 million of cash we used in 2021. As I will explain, our operating cash flow is significantly less than our GAAP net loss, primarily due to several non-cash expenses.

Our GAAP net loss for the year ended December 31, 2022, was $27.4 million or $1.70 a share compared to a net loss of $11.4 million or $0.75 per share for the same period of 2021.

The increase in our net loss was primarily due to a one-time non-cash impairment of an intangible asset for $7.3 million, along with increased stock-based compensation and the clinical trial costs we incurred in our active clinical trials.

For the year ended December 31, 2022, we incurred $11.5 million in research and development costs, an increase of $4.6 million when compared to the same period of 2021. During the year ended December 31, 2022, our general and administrative expenses totaled $8.8 million compared to $4.7 million for the same period in 2021.

The increase was primarily due to increases in stock-based compensation and other payroll-related expenses. We rely heavily on stock-based compensation for our executive officers. During 2022, the majority of our executive officers' base salary was paid out in restricted stock units.

The cash portion for all six of our executive officers' base salaries was less than $600,000 with the remaining portion of their base used to acquire just a little over 390,000 shares of our common stock with a fair value of approximately $1.1 million on the day it was acquired.

Not only does this conserve our cash, but it aligns our executive team with our shareholders. In total, during the year ended December 31, 2022, we allocated $8.8 million of non-cash compensation costs between research and development, and general and administrative expense with the majority being recorded as G&A.

This is a very exciting time for Processa as we prioritize our efforts to focus on the next-generation chemotherapy drugs in our pipeline. I will now turn the call over to our CEO, Dr. David Young, to go over our current drug pipeline and our current plans. David, please go ahead..

For next-generation capecitabine, we expect to meet with FDA in mid-April to discuss the Phase 2b safety efficacy trial with interim analysis and next-development steps; we expect to complete the Phase 1b trial to refine our understanding of the adverse event exposure relationship; and lastly, we hope to initiate the Phase 2b study sites in 2023 -- at the end of 2023, with the goal to have our interim analysis mid-2024 and complete enrollment in 2024.

For next-generation gemcitabine, we expect to meet with FDA in mid-2023 on the Phase 2b safety efficacy trial and next development steps with the goal to submit a Phase 2b protocol to the IND in the fourth quarter of 2023 and initiate the trial in 2024.

For next-generation irinotecan, we hope to initiate the IND-enabling studies in 2023 with the goal to complete studies by the end of 2024. Regarding licensing or partnering our drugs, we are now working on licensing or partnering our non-oncology drugs. But we would also consider monetizing one or more of our next-generation chemotherapy drugs.

Corporately, we are expanding our visibility and public presence, including social media, by engaging an IR/PR group as well as planning to communicate more with our investors. We also plan to interact more with the oncology community, including key opinion leaders and patient advocacy groups. Next slide.

This last slide summarizes some of the material in the previous slides. Before we end my part of the earnings call, I thought I would address a few questions that we received from investors.

The first one I'd like to address is we've been asked, why develop next-generation chemotherapy instead of finding a new oncology treatment? As I stated when discussing the slides, our next-generation chemotherapy drugs represent a better treatment for cancer patients that will improve their survival and quality of life.

These drugs are not new because they kill the cancer in the same way as the presently approved drugs. But new -- they are new because they provide less side effects. They are handled by the body differently, and it should provide a better benefit risk profile for approval.

With these drugs and the implementation of our regulatory science approach, including the principles of Project Optimus, these next-generation chemotherapy drugs can be more efficiently developed, have a greater probability of approval, and will be better treatment options than the existing FDA-approved drugs.

A second question that we have been asked is what steps are you taking to enhance shareholder value? We've implemented a number of strategies to increase shareholder value, and we are in the process of launching more.

These have included increasing Processa visibility by bringing on the IR/PR group to improve everything from our website to the number and quality of our presentations to include -- increase our presence on social media.

We're also reaching out more to the oncology community, as I said, both physicians and patients, to make sure that Processa and our next-generation chemotherapy drugs are better known. And finally, we are working with FDA to hopefully expedite development and make the development process as efficient as possible.

The last -- well, not last -- question I'd like to address is we've been asked, why have the members of the C-suite not purchased shares recently? Some of the C-suite and Board were involved in the $6 million raise earlier this year that Jim mentioned.

Unfortunately, during most of the first quarter of 2023, we have all been blacked out, which has made any type of Processa stock purchase impossible. Hopefully, that will change in the near future. I want to close by saying that my management team and I are keenly aware of the underperformance of our stock in recent months.

As noted earlier, this remains an equity play for all of us involved. While displeased with our current valuation, we are focused on doing those things which we believe are all in our collective best interest and have the potential to create substantial value for Processa and its investors. Operator, I'd like to hand it to you..

[Operator Instructions] François Brisebois, Oppenheimer..

It's Dan on for Frank. Thanks for taking the question.

Just -- if I could start with more of a broad-level question, given the alignment of the trials to Project Optimus, just wondering how we should be thinking about dosage levels, given that the dosage is going to be optimized for efficacy and safety, and it can vary from patient to patient? And how should we be thinking about that? And related to that, if you could add some color on what the goals are for the upcoming mid-April meeting with the FDA, that would be great.

Thanks..

Okay. Thanks for joining us.

Can you hear me? Can everybody hear me okay, I hope?.

Yes..

Okay. So let me first -- let me go to the last question first. The goals for the meeting with FDA mid-April are to actually discuss their view of Project Optimus, given our next-generation capecitabine and then come to an agreement and negotiate out what would be the best dosage regimen or designs to put into the Project Optimus Phase 2b trial.

Since we use Project Optimus in other types of drugs, we know how to do it. But we wanted to hear from the oncology group because this is new to them, their thoughts and their approach that they want to take. We'll then take that together and discuss it with them, come up with an agreement with them, and then be able to move forward.

So that's the real design and -- the design of the study as well as the dosage regimen. Your first question, could you remind me what the first question was? I apologize..

Just in terms of how -- since it's not an MTD trial, how we should be thinking about dosage levels across patients going to be optimized for --.

Yes. So what we're going to be doing is -- what we have done in our Phase 1b trial is we've been monitoring the exposure of the drug to each of the patients. You have to remember that this is a drug interaction situation where one drug alters the metabolism of capecitabine.

6422 alters the metabolism of capecitabine, which then alters also the distribution, all right? So what's important is to know that how is it altering? Is it altering? As you said, there may be an individual patient that alters differently than another patient.

And all these things are going to be monitored in patients so that by the end of the Phase 2b trial, we'll have a better idea of what the design of the Phase 3 trial should be.

We're already getting that initial information in our Phase 1b trial, but we need to get to the efficacy side, which would be in the Phase 2b trial, then we'll be able to design the Phase 3..

Great. And just a quick one from another one.

How are you thinking about indications for the next-gen capecitabine program? Is that patients who would be otherwise be prescribed capecitabine or across indications?.

Right now, we're going to be looking at patients who would typically be prescribed capecitabine. But we do not think that that will be the end result. We think the types of patients, the targeted population, is much broader. And we also believe that the targeted population will be on metastatic colorectal cancer.

It's also pancreatic cancer, other types of cancers. This is just the first step to get to the end..

Great. Thank you for taking my questions..

Thank you..

[Operator Instructions] Naz Rahman, Maxim Group..

Hi, guys. Thanks for taking my question. I have a few, actually. I'll just start on your next-gen capecitabine product. Recently, you announced you're enrolling the 300-milligram patient cohort. And you said that you expect to complete enrollment by mid-2023.

Could you comment on what gives you confidence in completing one by mid-2023? And when can we expect to see data from that cohort?.

Well, so for the 300-milligram group, we already have some patients enrolled. We have been pushing the sites to enroll more quicker.

And so, we're pretty confident we'll have it done in the next month or two, all right? The question then becomes do we go to the next cohort, or should we be going to the next cohort after that? We won't know that until we see the doses or the safety profile from the dose that we're presently on.

We're still going to the FDA, though, in mid-April because regardless of having it, we know that one of the dosing regimens that FDA will want us to take into the Phase 2b will be that MTD -- will be that MTD dose. And so, we will be using that. So it doesn't prevent us from meeting the FDA -- with the FDA.

It doesn't prevent us from initiating things in terms of protocols and getting CROs selected. It doesn't prevent us from doing all that. But we won't know the exact dose or the exact dosage regimen until we get to that MTD, which, again, we project it will be in mid-year..

Got it.

And on that Phase 2b protocol that you plan to discuss with the FDA, could you provide some potential color in what you expect the Phase 2b or what are you thinking the Phase 2b might look like in terms of study design?.

Yes, I prefer not to discuss that right now until we negotiate a little bit more and discuss it with the FDA. But it's going to be a more typical efficacy safety study, where we're looking, of course, at efficacy and safety.

We are going to be talking about probably anywhere from three to four groups with different dosing regimens and potentially a control group with the established dose. So again, we are proposing something to the FDA and trying to figure out how what how they're thinking about Project Optimus.

And based on what they share, we'll be able to figure out how they're thinking about it a little bit more and then be able to tweak our study to -- not only the needs of getting into Phase 3, but also fit the needs of the answers and questions that FDA might have..

Got it. And I'm going to shift gears a little to on 3117, a few questions here. Previously, you mentioned that you guys are developing a macro molecule assay.

Have you on completed work on that, and what might it look like? Is it like blood based or biopsy based, and are you still working on this project?.

Yes, we are still working on it. But if you think about how biomarkers are evaluated at FDA, identifying a potential biomarker is the first step. That's all the analytical procedures, et cetera. That's the step we're at right now. The next step in the biomarker work is that you have to prove there really is a biomarker.

So our hope is that we will have the analytical part done. And then, at the end of the year, we'll be able to submit the protocol to the IND for a Phase 2b trial. And that Phase 2b trial will be the one that says, is it really a biomarker? Even though the analytical is done, you have to prove biologically and clinically it is a biomarker.

So that will be done also at the same time in the Phase 2b trial. So we're not using it. We're not going to be using the biomarker to say these are the only patients to study. We cannot do that because we don't know it's a biomarker because there hasn't been a study yet. So that's the Phase 2b study.

We're looking at efficacy, safety, as well as determining if this analytical measurement of a macro molecule is really a biomarker..

Got it.

And the biomarkers you're evaluating, are they blood based or biopsy based?.

I can't comment on that right now..

Okay..

Because there may be some intellectual property things that we're dealing with [and things] -- so I can't comment on that right now..

Got it. And I guess my last question is on 11T irinotecan. You mentioned that you obviously see a better risk benefit profile at a 50% dose.

But could you give more color on what the dosing regimen might look like? Does that mean, for example, you provide like 50% or even lower dose and increase the dosing frequency to reduce the incidents of AEs? Or are you dosing at the same volume and intervals just with a better formulation? Could just provide more color surrounding that?.

Yes. So right now, what we've done is we've kept the dosing regimen, the timing of the dose, the same. And the only thing we've done is change the actual amount that's been dosed, all right, in terms of the active molecule. But we have to remember, this is not a formulation change. So the formulation of these things don't make a difference.

But the key to this is this is a prodrug. So what we've done is we've taken the active molecule of irinotecan, which is SN-38, and we've hooked on some other molecules onto it. And those other molecules preferentially put the drug into the membrane of the cancer cells over normal cells.

So it's like -- I don't want to call it -- it's like a transporter, or in some way just loads up the drug into the cancer cells versus normal cells. And so, we have a different balance between how much the cancer cells get this SN-38 versus normal cells compared to irinotecan, where you have a different balance.

So what we're really doing is the prodrug that makes this drug be attracted into the membrane of cancer cells..

That actually raised two questions from me. So it sounds like that your 11T, it sounds like it's more selective.

Do you have any numbers surrounding selectivity of 11T versus regular irinotecan? And also, is it also more bioavailable?.

We do have numbers. I can't share those right now, but we'll be putting something out on that in the near future. But in terms of -- the administration is parenteral administration, if not oral administration. So the bioavailability is pretty much the same. But again, I won't -- I can't comment.

There is a difference in the cancer to tissue ratio of irinotecan versus next-generation irinotecan. There is definitely a difference, a big difference. But I just can't say the number right now at this time..

Got it. So I just have one last question, if you don't mind.

Is it possible for you to comment on what you think the Phase 2B for 6422 and Phase 2b for 3117 might cost?.

That's hard for us to do right now because a lot of it depends on the discussion and negotiations with the FDA. Of course, if they want four arms and they want a bigger study, that's going to be more expensive. If it's only two or three arms and not having a normal control, for example, it would be less expensive.

I really can't say because it depends on how we finalize the design, which we won't know until after we meet [NATCO] for next-generation capecitabine. For next-generation gemcitabine, it's a little different. What we are going to be looking at, we are meeting with the FDA also mid-year in that.

And what we are going to be looking at is the alternative types of pancreatic cancers that we should be targeting this drug to.

And so, a lot of that it will, again, will depend on where we think the FDA will want us to go, where the market is for this drug in terms of type of pancreatic cancer, or in terms of what stage of pancreatic cancer, or surgical/nonsurgical.

So there's always nuances of pancreatic cancer that we have to discuss with the FDA and then evaluate from a market as well as drug development timeframe, as well as costs, which is about to go..

Got it. Thanks for taking all my questions..

Thanks, Naz..

[Operator Instructions] Okay. We have no further questions in queue. We have reached the end of the question-and-answer session. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation..

Thank you..