Greetings and welcome to Processa Pharmaceuticals Second Quarter 2021 Earnings Conference Call and Corporate Update. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference 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 second quarter 2021 quarterly results and drug development update conference 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 second quarter Form 10-Q.

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 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 described in the Private Securities Litigation Reform Act of 1995.

All statements made on this call, with the exception of historic 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, those contained in subsequently filed quarterly reports on Form 10-Q, as well as in other reports we file from time-to-time with the Securities and Exchange Commission.

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 briefly touch 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. Before I review our published financial results, I'd like to highlight that on June 16 of 2021, we entered into a license agreement with Ocuphire Pharma to license in RX-3117.

3117 is an oral anticancer agent with an improved pharmacological profile relative to gemcitabine and other nucleoside analogues. 3117 has a family of patents extending into 2036 as well as U.S. Food and Drug Administration orphan designation for the treatment of pancreatic cancer. Dr. Young will discuss our plans for PCS3117 later in the call.

For the second quarter of 2021, we reported a net loss of $3.2 million or $0.20 per share, compared to a net loss of $733,000 or $0.13 per share for the same period of 2020.

The increase in our net loss primarily relates to clinical trial costs incurred as we commenced trials for PCS499 in Ulcerative Necrobiosis Lipoidica and PCS6422 in advanced gastrointestinal tumors and costs we incurred licensing PCS3117.

As we enter the execution phase of our most advanced programs, we anticipate that our costs will continue to increase for the remainder of the year as we enroll patients and continue the associated development activities for advancing our other exciting pipeline programs.

We recently received notification from the Small Business Administration that our PPP loan of 163,000 has been forgiven. Our net cash used in operating activities increased during the 6 months of 2021 by $3.5 million to $4.4 million, when compared to the 6 month period ended June 30, 2020.

The increase was due to costs we incurred preparing for and commencing our Phase 2B trial for PCS499, and our Phase 1B trial for PCS6422, including advanced payments to our CROs and payments related to our licensing of 3117.

During the second quarter of 2021, we incurred research and development expenses totaling $1.6 million, compared to $427,000 for the same period in 2020. The increase in our R&D costs of $1.2 million in 2021 was primarily due to costs we incurred relative to our 2 active clinical trials.

Our general and administrative expenses for the 6 months ended June 30, 2020 totaled $1.3 million compared to $375,000 for the same period in 2020. The increase related primarily to increases in professional fees and stock-based compensation.

Our total stock-based compensation included in general and administrative expenses in the second quarter of 2021 was $674,000. As of June 30, 2021, we had $20.8 million in cash and cash equivalents and 15.6 million common shares issued and outstanding. That concludes my remarks. I'll turn the call over to our CEO, David Young. David, please go ahead..

Thank you, Jim. Good evening. Thank you for joining us today. During my time with you today, I plan to highlight what we've accomplished so far in 2021 in our drug development programs, then briefly share what you should be expecting over the next 6 to 12 months.

I will not be covering all the details on each slide, but the slides will be posted on our website if you want to study them more. Let's go to our first slide. I'm sure that most of you seen this slide before, it describes the criteria that we use to select the drug for our pipeline.

But also describe the fundamental approach that Processa uses corporately. We make small bets on potentially large wins in order for Processa to achieve an asymmetrical risk reward or market cap to market opportunity.

Both our regulatory science approach and our corporate approach, is to evaluate the benefit risk of everything and determine how to improve the benefit risk profile to our advantage. That's why we are a drug development company not a drug discovery company, and while we have 5 criteria that must be met for a drug to be in our pipeline.

Today, I will only briefly talk about the first 3 criteria. The first criteria is the drug must provide treatment to patients that need better treatment options than what already exists. These are patients with an unmet medical need condition, who need something to improve their survival and are improve their quality of life.

Second, there must be some evidence of clinical efficacy for the drug in the target population of patients. This means that a drug or a drug with similar pharmacology must have demonstrated some efficacy in the target population.

And third, the regulatory science approach to develop the drug must provide a more efficient path demonstrated better benefit risk profile, compared to existing therapy options for the targeted patient population. Next slide. Now, let's look at what we've accomplished in our drug development programs over the last 3 months.

Our overall development goal was to move the drugs closer to FDA submission. And we accomplish that, as can be seen in the red box describing the present status of our pipeline.

For 499, and its Phase 2B trial, 2 patients have been enrolled in the study and we have 3 of 9 sites recruiting patients, with the other 6 sites being initiated over the next few weeks. For 12852 and its Phase 2A trial, we plan to submit the IND before the end of September. During the second quarter, we also in-licensed another cancer drug PCS3117.

This drug already has demonstrated some efficacy and treatment resistant pancreatic cancer patients.

To define, which patients would do better on this drug and other existing pancreatic cancer drugs, we have begun to select lab, who can develop specific biomarkers that will identify the patients more likely to respond to 3117 compared to existing chemotherapy.

PCS6422, our second drug for the treatment of cancer is used in combination with capecitabine to treat colorectal cancer and as enrolled its first patient and its first cohort.

Other patients are in the screening waiting room, these patients will be screened and if appropriate enrolled in a few weeks after we obtain some clinical data on our first patient. We expect to have all our sites up before the end of September.

And the last cancer drug, PCS11T, we are identifying and evaluating contract manufacturing organizations, they can manufacturing this drug. Next slide. Let me quickly review our 499 Phase 2B drug, where which we have FDA orphan designation.

NL is an unmet medical need condition that initially appears to be a dermatological condition, but is a condition that affects the skin and tissues below the skin. NL can last from months to years with complications such as infections and amputation.

Also, it's occurring in about 30% of the patients in conclusive diagnosis can only be accomplished through a biopsy, where the histological presentation is different than other ulcers, such as diabetic ulcers.

The NL ulcers can occur naturally over the clinical course, or they can occur from contact trauma to the lesion, because the skin becomes more fragile and brittle. More importantly, natural complete healing of moderate-to-severe ulcers than the first 1 to 2 years after onset, encourage them less than 5% of these patients.

Currently, there is no FDA approved treatment for NL and no standard of care. And all drugs used off-label are inadequate, because of dose limiting side effects, which prevents the drug to be given at a high enough dose to possibly see significant efficacy. This includes a drug called pentoxifylline, or as I often call it, PTX.

PTX does work in closing the ulcers of some patients, but side effects limit the dose that can be administered. Given there are 22,000 to 55,000 ulcerative NL patients in the U.S. The U.S. potential market is approximately $1 billion. Next slide. 499 is similar to PTX, but not identical. It's the deuterated analog of one of the major metabolites of PTX.

It has the identical same 7 metabolites of PTX, and it hits the exact same pharmacological targets that the pharmacokinetics of 499 and metabolites are different after 499 administration resulting in a better efficacy and safety profile than PTX.

499 and its metabolites affects 6 different pharmacological pathways, which directly affect 6 of the 7 pathophysiological changes know to occur in NL. The results in 499 in these patients, it acts like a multiple drug cocktail, although all the effects are coming from 499 and its metabolites.

The safety profile 1.8 gram per day at 499 is better than the safety profile of 1.2 grams per day of PTX, as shown in toxicology studies as well as Phase 1 and Phase 2 clinical studies.

In addition, we found that in our Phase 2A NL trial, complete wound closure was achieved with the 1.8 gram per day of 499 in the only 2 patients who presented with ulcers, and each patient had contract trauma ulcers on the drug and those ulcers also closed within 1 month. The picture shown on the left is one of these patients prior to receiving 499.

You can see the ulcers circled, after treatment the ulcers are completely closed as seen in the picture on the right. The bottom of this slide is from our pipeline slide reminding everyone that we hope to complete the interim analysis for 499 in the first half of 2022. We hope to complete the study in the second half of 2022.

And then we plan to meet with the FDA for an end of Phase 2 meeting to grant a design of a pivotal Phase 3 Special Protocol Assessment trial to begin in 2023. Next slide. The other non-cancer drug in our pipeline is PCS12852.

This drug is a 5HT4 agonist that is more potent and more specific to the 5HT4 receptor than any other drug approved by FDA or presently being investigated. The target indication for the drug is the treatment of gastroparesis.

And the clinical trial the drug has been shown to significantly increase gastric motility and requirement to treat gastroparesis, while also having a better side effect profile than other 5HT4 agonists. Next slide.

Given that the only approved drug for gastroparesis, and drugs used off label for gastroparesis, so all have serious side effects, limiting their use. The market for gastroparesis is a wide open market with enormous potential sales.

Fortunately, there's been a lot of preclinical and clinical work done in 12852, so that we expect to submit a Phase 2A IND in September and enroll our first patient in the first half of 2022. Final analysis of this Phase 2A study should be completed in the end of 2022 for the beginning of 2023.

The first of our oncology drug to discuss is the one that we recently acquired PCS3117. Next slide. 3117 is our most advanced cancer chemotherapy agent and development. It has a patent life to 2036 and FDA orphan designation for the treatment of pancreatic cancer.

3117 is an analogue of endogenous nucleotide cytidine, and an analogue of the cancer drug gemcitabine, which has sales of greater than $800 million in the U.S. Gemcitabine is presently used as first-line therapy for metastatic pancreatic cancer and non-small cell lung cancer, as well as use the second-line therapy for other types of cancers.

Unfortunately, 55% to 85% of the patients receiving gemcitabine are inherently resistant to gemcitabine, or acquire resistance while on the drug. The resistance can exist or occur because of multiple biological reasons, 2 of the causes for resistance, which may 3117 an attractive alternative to gemcitabine.

Our first dCK, the activation enzyme from gemcitabine is down regulated, resulting in less activation gemcitabine. The activation enzyme for 3117 is dCK2, which is different than dCK. And in many patients dCK2 exist in cancer cells more than normal cells.

Secondly, RRM1 and RRM2 with the ribonucleotide reductase enzyme is up-regulated, this results in an increase in endogenous cytidine nucleotide, which then compete with the active gemcitabine cancer killing nucleotide. For 3117, this up-regulation of RRM1 and now RRM2 actually stimulates the production of the 3117 cancer killing nucleotides.

In addition, 3117 not only follow the same gemcitabine pharmacological pathway, affecting DNA cancer cell apoptosis, but it also affects RNA and DNA methyltransferase, resulting in cancer cell apoptosis following a different pathway than gemcitabine.

It is important to note that the efficacy of 3117 has already been demonstrated in a small number of gemcitabine-resistant pancreatic cancer patients. Next slide. Our development program will be based on our overall mission to improve the benefit/risk profile over existing treatment options.

For 3117, this means targeting patients who do not or probably will not respond to gemcitabine. We believe this can be done through the development and refinement of assays for a few biological molecules or biomarkers to identify which patients are more likely to respond to or activate 3117 over gemcitabine.

Over the next 6 to 12 months, we hope to complete our biomarker assay development, such that we will be able to evaluate the assay in a Phase 2B biomarker pancreatic cancer study initiated in the second half of 2022 and then move to the pivotal Phase 3 FDA Special Protocol Assessment trial in 2023 or 2024. Next slide.

The second oncology targeted drug is PCS6422, a chemotherapy modifier of the widely used drug capecitabine or Xeloda, the oral form of 5-FU, one of the cornerstone cancer chemotherapy drugs since the 1960s.

6422 has the potential to improve the benefit/risk profile of capecitabine, by altering the metabolism of capecitabine which results in a decrease in the side-effects, while potentially improving the progression-free survival of patients, making this a combination, a potential $1 billion market for just the treatment of metastatic colorectal cancer.

If we include other cancers where capecitabine is first or second line therapy, the market for 6422 and capecitabine is a multiple billion dollar market. Next slide.

Preliminary evidence presently exists demonstrating that the administration of 6422 with 5-FU related drugs like capecitabine will improve not only the safety, but also the efficacy profile for these 5-FU related compounds.

Using a regulatory science approach, we have also found potential biomarkers that will help to identify those patients who will most likely benefit from this targeted therapy over present treatments. From our Phase 1B trial, we expect to obtain information to better design a Phase 2B or an adaptive design Phase 3 trial in the near future.

Over the next 6 to 18 months, we expect to complete an interim analysis of the first 2 cohorts in the fourth quarter of 2021, then define our maximum tolerated dose in the second half of 2022. And begin our Phase 2B or our pivotal Phase 3 trial in 2023 or 2024. Next slide.

This slide presents just the timeline for the key clinical milestones for all 5 drugs in our pipeline. I've already mentioned these milestones, but this slide provides a summary of the milestones over the next 6 to 18 months in a timeline format. Next slide.

We accomplished a lot in the first and second quarter, but we expect to accomplish even more over the next 6 months. This last slide summarizes what we expect to accomplish in development over the next 6 months. First, a complete enrollment of patients for the interim analysis of 499. Second, IND clearance for 12852 in Gastroparesis.

Third analysis of Cohort 1 and 2 in the 6422 Phase 1B dose escalation study. Fourth, initial development of the 3117 biomarker assays. Fifth, we are presenting at the World Orphan Drug Congress on August 25 to 27. And lastly, we'll be presenting at Oppenheimer Fall Healthcare Life Science and MedTech Conference in September 20 to 23.

It's important to note that with the $20.8 million of cash that Jim mentioned, that we have - as of June 30, 2021, we have enough cash to support our efforts through 2023, while completing the 499 Phase 2B trial, the 12852 Phase 2A trial, the identification of the maximum tolerated dose of capecitabine when administered with 6422 in the Phase 1B trial, and the development of the 3117 biomarker assays.

I hope this earnings call has given everyone a better understanding of what we've accomplished over the last 3 months as well as the first 6 months in 2021. As you can see, we also have a lot to do over the next 6 months. And we believe the value of Processa will become more apparent as we start seeing interim results.

And with each program, one step closer to FDA approval. That concludes my remarks. I'll now ask the operator to open the phone lines for Q&A.

Operator, can you please poll for questions?.

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from François Brisebois. Your line is live..

Hi, thanks for taking the question. So I was just wondering on 6422 is coming up shortly for an interim look. What are you hoping to see in this interim look? And I think you mentioned having found some biomarkers for 6422. I was just wondering if there's anything shared there on that side? Thank you..

Thanks for the question, Frank. This is David. We're not really sharing what the biomarkers are right now. And so, I can't share that.

But what I can tell you is the interim look we're going to be actually figuring out if 6422 is affecting the metabolism enough and long enough to give us an advantage and improve the safety and efficacy of Xeloda or capecitabine. So we'll be looking actually at the metabolism, what's the effect on the metabolism side of view.

That's really what we'll be doing. And we'll be able to report that out with multiple cohorts by the end of the year..

And will you get any look on levels of DPD for instance..

We're going to be looking at DPD. And so, we're working on multiple assays. One assay may be a little bit better than the other. And so, that's kind of being evaluated now. We will try to look at DPD, but we're not sure what assay we'll be using to do that with, because there are multiple assays that we could use.

But we will have a feeling for what's going on with DPD, yes, 100%..

Understood, that's great. And then, just if I sneak another one in, on 6422, in terms of the commercial opportunity, I know that's a little further away.

However, I guess, a 2-part question, from this Phase 1B, can you move right into a Phase 3 and depending on the data, I guess? And also, how important is it to show safety and efficacy advantages? Or would safety alone be sufficient? Thank you..

Okay. Let me answer your second question first. All right, it would be better if we had efficacy and safety. The problem with just safety, being better safety, the sample size might require a larger number. That may be the problem. We don't know that yet.

But having done safety-only studies or improving safety studies before in former life, that usually is what occurs. If you're trying to prove the safety is better, it usually requires larger sample size. So that it would be better for us if it was efficacy and safety. All right. And we think we're going to see both.

But again, we're not saying what the exact efficacy improvement will be. We know it will be safety. But we think we'll also be able to have some efficacy improvement. So that's your second question.

Your first question, I forgot, Frank, what was your first question?.

He was asking whether you can go from Phase 1B to Phase 3.

The question is, what would be - what could be the next phase of development hereafter?.

Okay, all right. So it really depends on what we're seeing in the Phase 1B. If we're seeing some efficacy in terms of progression-free survival or overall efficacy, then we might be able to. If we're not, we might be able to go to a Phase 3. What we would do though, is we would choose an adaptive design Phase 3. We wouldn't just do a straight Phase 3.

We would choose an adaptive design Phase 3. If we're not able to get enough efficacy call on what's going on in a Phase 1B then, in fact, we might do a 2B instead. And then, do a Phase 3 after that. So it really depends on what results we're getting. So it's a possibility. But I just don't know right now until we see the data..

Thank you very much..

Your next question is coming from Aydin Huseynov. Your line is live..

Hi, thank you for taking my questions and congratulations with the quarter. One question on 3117.

So given that PCS3117 has a similar structure with gemcitabine, how would you imagine, hypothetically, the Phase 3 trial design? One of your slides mention that 55% to 85% are resistant to gemcitabine? So would you target this population or would you try 3117 in a randomized fashion versus gemcitabine?.

That's a good question. And right now, we're thinking about all the options. We haven't come up with a final conclusion on it. But that's one reason we're doing the biomarker. And so, we will be doing 2B study.

If the biomarker helps to identify those patients who respond to 3117, then we could theoretically just go with the 3117 biomarker type of approach, and against gemcitabine or take treatment resistant gemcitabine patient.

So, there is a lot of options for the Phase 3, and we're just not sure yet until after we get the data from the Phase 2B study with biomarkers..

Okay, I appreciate that. And about the biomarker for 3117, if you had to develop a biomarker assay to improve the efficacy of gemcitabine, and obviously, right now it's just all commerce approach.

But if you had to design a biomarker assay for gemcitabine, what would you be looking for in terms of how to improve the response rate of patients to gemcitabine?.

There's been a lot of work actually done in looking at gemcitabine treatment resistance and whether it's be inherent treatment resistance, or acquired treatment resistance with gemcitabine.

And a lot of that work points to there are 4 or 5 different areas, or different pharmacological biological things that occur that could be causing the resistance everywhere from the dCK level to the transport of the gemcitabine steadily through across the cell membrane to the ribonucleotide reductase level.

All of those things are possibilities that could affect gemcitabine resistance and efficacy. And so part of our goal in looking at the biomarkers for 3117 will be, we're going to have to also consider the biomarkers that also may be in existence for gemcitabine and pancreatic cancer in general.

So, again, we are not really being real specific on which biomarkers or biological molecular entities we're going to be monitoring. But, we're looking at a whole gambit of potential biological markers..

Understood. Thank you. I have another question on PCS499. So, you enrolled 2 patients, 10 patients who were pre-screened, but didn't fit the criteria apparently.

So would you be able to comment which criteria of these patients didn't meet?.

Yeah, it was a mixture, there was not 1 criteria, it was a mixture from patients not wanting to travel and do all the tests, all the visits that was one. With the criteria that instead of having an ulcer, it was more of an erosion of the skin, and rather than the ulceration of the skin, those types of things.

So when the physician started talking to the patient on the phone to see if they would, should come in to be screened. They realize, oh, this patient isn't going to qualify, because, it's just an erosion, it's not really an ulcer, for example, or the ulcers real small, it's not large enough.

So it was really, again, looking at based on the phone call, what's going on with the patient and then making some decisions upfront, that they just wouldn't be qualified..

Okay. Thank you very much for taking my questions..

Thank you..

Your next question is coming from Robin Garner. Your line is live..

Hi, good evening, and congratulations on the quarter. Few questions for me.

The first, how many patients do you expect to be part of the interim analysis for necrobiosis lipoidica? And what are you hoping that that interim look will reveal?.

Okay. So we expect to have somewhere between 8 and 10 patients on our interim analysis. And we expect that it will tell us something about the response rate of the placebo group, that's probably the most important thing, because nobody has actually formally studied that.

You can talk to physicians, you can talk to patients, and all of them will tell you, well, if you just use the standard of care, nothing really heal the ulcers. It doesn't go away quickly. It may take years and years and years to go away, if it goes away at all, so that test is the placebo group.

And so what, that's the biggest piece of information we'll get, is does the placebo group have a lower response rate in terms of natural healing.

And if that's true, then it becomes easier for us to design and have a smaller sample size in our Phase 3 study, it's easier to discuss the options with FDA, because, again it's evidence that natural healing just doesn't occur..

Okay, thank you for that. You mentioned earlier that 3117 is your most advanced oncology asset.

How should we - and I know this is a little bit far out, but how should we think about the length of a Phase 3 study for this program? And when it would read out relative to a 6422 Phase 3 study?.

Yeah, that was a tough one. That was a tough one to answer. I don't think I have an answer for that one quite yet. I need to see the results of the Phase 1B trial and the Phase 2B trial.

The reason we say it's the most advanced is, we believe we can get to the Phase 3 trial relatively quickly, based on doing a Phase 2B biomarker kind of study or analysis, and then quickly go into the Phase 3. Well, the 6422, we're in Phase 1B to determine the maximum tolerated dose.

And depending if we see any efficacy that will guide us in terms of what we're going to do. We already know that in treatment resistance gemcitabine patients that there is some efficacy with 3117. So we have that information already. So that's kind of where we're coming from, it's just there's a couple extra steps that we might have to take with 6422.

Now, we could get lucky, and that we could see some efficacy results in the Phase 1B for 6422. Then, of course, it may be neck and neck between the 2. So I really, it's hard for me to say what the timing will be or which one will be hitting Phase 3 first. That's just kind of our guess given what we have, the data we have in front of us right now..

Okay, thank you for that.

And then my last question, just how should we think about clinical trial costs going forward for all 3 programs that will be in the clinic very shortly?.

Are you talking about clinical trial costs for the trials that are going on now, or you're talking about future clinical trial costs like Phase 3?.

Really just the current, but including gastroparesis [indiscernible] 499..

Right. Okay. Yeah, so 499, 6422 study, and the 12852 gastroparesis study, all those are in the range of $3 million to $5 million. That's kind of the range of the study, depending on which one. So they're all in a very similar range between $3 million and $5 million. Now, the 3117 study, again, we're developing the biomarker.

That's going to take about 6 to 12 months to develop. So we really haven't gotten to the whole design of that study yet. So I can't give you a cost. But my guess, if I would give you a cost, it's going to be somewhere around the $3 million range. So all of these studies I think are going to be in the $3 million to $5 million range.

That's for all 4 of those drugs..

Okay, thank you..

Thank you..

There are no further questions from the lines at this time. Thank you, ladies and gentlemen, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation..

Thank you. Bye-bye..