Quarterly report pursuant to Section 13 or 15(d)

Organization and Summary of Significant Accounting Policies

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Organization and Summary of Significant Accounting Policies
 9 Months Ended
Sep. 30, 2022
Accounting Policies [Abstract]  
Organization and Summary of Significant Accounting Policies

Note 1 – Organization and Summary of Significant Accounting Policies 

 

Business Activities and Organization

 

We are a diversified clinical-stage biopharmaceutical company focused on the development of drug products that are intended to provide treatment for patients who have a high unmet medical need condition that affects survival or the patient’s quality of life and for which few or no treatment options currently exist. We currently have five drugs in our pipeline: four in various stages of clinical development (Next Generation Capecitabine previously identified as PCS6422, PCS12852, PCS499, and PCS3117) and one in nonclinical development (PCS11T). A summary of each drug is provided below.

 

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Next Generation Capecitabine (NGC), previously identified as PCS6422, is a combination of PCS6422 and the FDA-approved cancer drug capecitabine. PCS6422 is an orally administered irreversible inhibitor of the enzyme dihydropyrimidine dehydrogenase (DPD). DPD metabolizes 5-Fluorouracil (5-FU), the major metabolite of capecitabine and widely used itself as an intravenous chemotherapeutic agent in many types of cancer, to multiple metabolites classified as catabolites. These catabolites do not have any cancer-killing properties but do cause dose-limiting side effects that may require dose adjustments or discontinuation of therapy.

 

When combining capecitabine with PCS6422 in NGC, capecitabine becomes a more potent cancer chemotherapy agent than current FDA-approved capecitabine requiring significantly lower doses. On August 2, 2021, we enrolled the first patient in our Phase 1B dose-escalation maximum tolerated dose trial in patients with advanced refractory gastrointestinal (GI) tract tumors. Our interim analysis of Cohorts 1 and 2A found no dose-limiting toxicities (DLTs), no drug-related adverse events greater than Grade 1, and no hand-foot syndrome, a major side effect found with the catabolites of 5-FU. In this Phase 1B trial it was demonstrated that the irreversible inhibition of DPD by PCS6422 could alter the elimination of 5-FU making NGC significantly more potent (greater than 50 times more potent) and potentially lead to higher levels of the group of metabolites called anabolites which can kill replicating cancer and normal cells. By administering NGC to cancer patients, the balance between anabolites and catabolites changes depending on the dosage regimens of PCS6422 and capecitabine used, making the efficacy-safety profile of NGC different than that of FDA-approved capecitabine and requiring further evaluation of the PCS6422 and capecitabine regimens to determine the optimal NGC regimens for patients.

 

In order for NGC to provide a safer and more efficacious profile for cancer patients compared to existing chemotherapy, understanding how the different regimens of PCS6422 and capecitabine may affect the systemic and tumor exposure to the anabolites, as well as the systemic exposure to the catabolites, is required. This can be achieved by following the timeline of DPD irreversible inhibition and the formation of new DPD using the plasma concentrations of 5-FU and its catabolites.

 

In an effort to better estimate the timeline of DP inhibition and formation of new DPD, we modified the protocol for the Phase 1B trial and began enrolling patients in the amended Phase 1B trial in April 2022. On November 1, 2022, we announced that data from the Phase 1B trial identified multiple dosage regimens with potentially better safety and efficacy profiles than currently existing chemotherapy regimens. Since 5-FU exposure is dependent on both the PCS6422 regimen and the capecitabine regimen, safe regimens were identified as well as regimens that cause DLTs. One regimen in the Phase 1B trial did cause DLTs in 2 patients, one of whom died. The Phase 1B study is continuing to enroll patients and is expected to complete enrollment in the first half of 2023. The next study will be a Phase 2B trial to determine which regimens provide an improved efficacy-safety profile over present therapy using the principles of the FDA’s Oncology Project Optimus initiative to help guide the design of the trial. This FDA initiative requires us to consider NGC regimens that are not at the maximum tolerated dose or exposure level. In 2023, we plan to meet with FDA to discuss the design of our Phase 2B trial and initiate the trial.
     
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PCS12852 is a highly specific and potent 5HT4 agonist which has already been evaluated in clinical studies in South Korea for gastric emptying and gastrointestinal motility in healthy volunteers and volunteers with a history of constipation. In October 2021, the FDA cleared our IND application to proceed with a Phase 2A trial for the treatment of gastroparesis. We enrolled our first patient on April 5, 2022, and completed enrollment of the trial on September 2, 2022. Early results from this Phase 2A study which included 25 patients with moderate to severe gastroparesis, demonstrated improvements in gastric emptying in patients receiving 0.5 mg of PCS12852 as compared to placebo, and statistical significance was shown at p < 0.10 even though there were only a total of 14 patients in the 0.5 mg and placebo groups of this study. The mean (±SD) t50 change from baseline was decreased for 0.5 mg of PCS12852 compared with placebo by -31.90 ± 50.53 min vs -9.36 ±42.43 min, respectively. Differences were not observed between the placebo and the 0.1 mg dose. Adverse events associated with the administration of PCS12852 were generally mild to moderate as expected, occurred within the first few days after administration, and quickly resolved without any sequelae. There were no clinically significant cardiovascular safety events or serious adverse events (SAEs) reported during the study. Additional data from the study will be available at the end of 2022 and we plan to initiate a Phase 2B study in 2023.

 

 

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Our pipeline drug to treat unmet medical need conditions caused by multiple pathophysiological changes in a patient is PCS499. PCS499 is an oral tablet of the deuterated analog of one of the major metabolites of pentoxifylline (PTX or Trental®). We completed a Phase 2A trial for PCS499 in patients with ulcerative and non-ulcerative necrobiosis lipoidica (NL) in late 2020, and in May 2021 we enrolled the first patient in our Phase 2B trial for the treatment of ulcerative NL. Based on our current enrollment, we expect to complete our interim analysis and complete enrollment of the Phase 2B trial during the first half of 2023; and, depending on the results, begin a pivotal Phase 3 trial in late 2023 or 2024. We have experienced delays in the enrollment of patients for this trial due in part to COVID-19 and the ultra-rare nature of this disease. As a result, we have initiated a number of recruitment programs to increase the enrollment of patients in this study and continue to evaluate additional options to meet our overall trial enrollment goals.

 

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PCS3117 is a cytosine analog that is similar to gemcitabine (Gemzar®), but different enough in chemical structure that some patients are more likely to respond to PCS3117 than gemcitabine. The difference in response occurs because PCS3117 is metabolized to its active metabolite through a different enzyme system gemcitabine. We continue to evaluate the potential use of PCS3117 in patients with pancreatic cancer and to evaluate ways to identify patients who are more likely to respond to PCS3117 than gemcitabine. We anticipate initiating a Phase 2B trial or adaptive designed Phase 3 trial in 2023 subject to meeting with FDA and obtaining additional funding.
     
  ● PCS11T is an analog of SN38 (SN38 being the active metabolite of irinotecan) and a next generation irinotecan drug for multiple types of cancers. The manufacturing process and sites for drug substance and drug product are presently being evaluated. In addition, we are defining the potential paths to approval, which include defining the targeted patient population and the type of cancer. We hope to submit an IND in 2024, followed by a Phase 1B maximum tolerated dose trial.

 

Impact of COVID-19

 

The COVID-19 pandemic continues to create uncertainties in expected timelines by causing delays in clinical trials and disruptions in the supply chain for raw materials used in clinical trial work. We have experienced delays in the enrollment of patients in our PCS499 Phase 2B trial due to COVID-19 and the rareness of the disease. Some potential patients died from COVID-19 prior to screening and others continue to be reluctant to travel to our testing sites for fear of contracting COVID-19. Delays in enrollment lengthen the time of studies and increase their costs, which could materially impact our business in future periods. While we are hopeful the infection rate of COVID-19 will continue to decline, we cannot predict the future impact COVID-19 will have on our current and future clinical trials and continued delays could materially impact our business in future periods and further extend our timelines. For more information on the risks associated with COVID-19, refer to Part I, Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2021.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions of the Securities and Exchange Commission (“SEC”) on Form 10-Q and Article 8 of Regulation S-X.

 

Accordingly, they do not include all the information and disclosures required by U.S. GAAP for complete financial statements. All material intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results of operations and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year.

 

 

Liquidity

 

We have incurred losses since inception, devoting substantially all of our efforts toward moving the drugs in our pipeline through the regulatory process and other research and development activities, and have an accumulated deficit of approximately $51.2 million as of September 30, 2022. During the nine months ended September 30, 2022, we generated a net loss of approximately $14.4 million, of which $7.0 million represented non-cash expenses. Net cash used in our operating activities during the nine months ended September 30, 2022 was approximately $7.1 million. We expect to continue to generate operating losses and negative cash flow from operations for the foreseeable future. Based on our current plans, we believe our current cash balances along with the amounts available under the Purchase Agreement with Lincoln Park (see below and Note 3) are adequate for at least the next twelve months. Our ability to execute our longer-term operating plans, including unplanned future clinical trials for our portfolio of drugs depend on our ability to obtain additional funding from the sale of equity and/or debt securities, a strategic transaction or other funding transactions. We plan to continue to actively pursue financing alternatives, but there can be no assurance that we will obtain the necessary funding in the future when needed.

 

We had no revenue during the nine months ended September 30, 2022 and do not have any revenue under contract or any immediate sales prospects. Our primary uses of cash are to fund our active clinical trials, research and development expenditures and operating expenses. Cash used to fund operating expenses is impacted by the timing of when we incur and pay these expenses.

 

On August 20, 2021, we entered into an equity distribution agreement (the “Sales Agreement”) with Oppenheimer & Co. Inc. under which we may issue and sell in a registered “at-the-market” offering shares of our common stock having an aggregate offering price of up to $30.0 million from time to time through or to our Sales Agent (the “ATM Offering”). We also expect to use net proceeds from any future ATM Offering as a source for working capital and general corporate purposes. The shares under the ATM Offering will be sold and issued pursuant to our S-3 shelf registration statement (Registration No. 333-257588) filed on July 30, 2021. See Note 3 for additional details concerning the ATM Offering.

 

On March 23, 2022, we entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) under which we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15.0 million of our shares of common stock, subject to the terms and conditions in the Purchase Agreement. We expect to use the proceeds from this Purchase Agreement as the source for working capital and general corporate purposes. See Note 3 for additional details concerning the Purchase Agreement.

 

Use of Estimates

 

In preparing our condensed consolidated financial statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, we make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to preclinical and clinical trial expenses, stock-based compensation, intangible assets, future milestone payments and income taxes. These estimates and assumptions are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. While we believe the estimates to be reasonable, actual results could differ materially from those estimates and could impact future results of operations and cash flows.

 

Income Taxes

 

We account for income taxes in accordance with ASC Topic 740, Income Taxes. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the basis of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. As of September 30, 2022 and December 31, 2021, we recorded a valuation allowance equal to the full recorded amount of our net deferred tax assets since it is more-likely-than-not that benefits from our deferred tax assets will not be realized. The valuation allowance is reviewed quarterly and is maintained until sufficient positive evidence exists to support its reversal. As part of an evaluation of our tax attributes, we recharacterized approximately $2 million of startup costs previously capitalized as an IRC Section 195 asset as net operating losses. The recharacterization has no impact on total deferred tax assets since we had previously and will continue to provide a full valuation allowance on our unutilized net deferred tax assets.

 

Under ACS 740-270 Income Taxes – Interim Reporting, we are required to project our annual federal and state effective income tax rate and apply it to the year-to-date ordinary operating tax basis loss before income taxes. Based on the projection, we recognized the tax benefit from our projected ordinary tax loss, which was used to offset the deferred tax liabilities related to the intangible asset and resulted in the recognition of a deferred tax benefit shown in the condensed consolidated statements of operations for three and nine months ended September 30, 2021. No current income tax benefit or expense was recorded or is expected for 2022 or in the foreseeable future since the deferred tax liability was offset completely as of December 31, 2021 and we expect to generate future taxable net operating losses.

 

 

Concentration of Credit Risk

 

Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of our cash and cash equivalents. We utilize only well-established banks and financial institutions with high credit ratings. Balances on deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Total cash held by our banks at September 30, 2022 exceeded FDIC limits.

 

Recent Accounting Pronouncements

 

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our condensed consolidated financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our condensed consolidated financial position or results of operations.