Processa Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Processa is a clinical-stage biopharmaceutical company with no product revenue; it reported no revenue for the six-month period. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $3.14 million | $1.61 million | $5.18 million | $3.09 million |
| General and administrative expense | $2.03 million | $1.33 million | $3.22 million | $2.05 million |
| Net loss | $5.16 million | $3.16 million | $8.39 million | $5.26 million |
| Net loss per share | $0.32 | $0.20 | $0.53 | $0.35 |
| Operating cash used | Not separately provided | Not separately provided | $4.13 million | $4.44 million |
At June 30, cash and cash equivalents were $12.06 million, down from $16.50 million at December 31, 2021. Current assets were $13.96 million and current liabilities $1.57 million. Total liabilities were $1.58 million, primarily accounts payable, amounts due to the licensor, accrued expenses, and operating lease liabilities; the filing reports no conventional borrowings. Accumulated deficit was $45.21 million. No operating margin is meaningful because the company had no revenue and incurred operating losses.
Six-month net loss included approximately $3.5 million of non-cash expenses, including $2.84 million of stock-based compensation and $394,000 of intangible-asset amortization. Financing activities used $300,000, primarily for the repurchase of 100,000 shares; operating activities used $4.13 million. Cash declined by $4.43 million overall.
Changes versus comparable periods
- Q2 net loss rose to $5.16 million from $3.16 million; six-month net loss increased to $8.39 million from $5.26 million.
- R&D expense increased 94% in Q2 and 68% for the six-month period, mainly reflecting increased clinical-trial activity and related costs, expanded development staffing, and a $189,000 PCS6422 license milestone expense.
- G&A expense increased 53% in Q2 and 57% for the six-month period, largely due to higher stock-based compensation and personnel costs.
- Six-month operating cash use was lower than in 2021, while the prior-year comparison included $9.88 million of private-placement proceeds. The 2021 period also included forgiveness of a PPP loan and related interest and an income tax benefit, neither of which was recorded in 2022.
Outlook, risks, and notable items
- Management said existing cash was expected to fund operations for at least 12 months from the filing, excluding availability under the Lincoln Park purchase agreement and ATM program. It expects continuing operating losses and negative operating cash flow and says longer-term plans depend on additional financing. No product-revenue guidance was provided.
- Pipeline timelines included PCS499 Phase 2B interim analysis and enrollment completion expected in the first half of 2023, with a possible Phase 3 start in 2023 depending on results; PCS12852 Phase 2A enrollment expected in the second half of 2022 and top-line results by year-end; and PCS6422 Phase 1B enrollment and regimen definition targeted by year-end 2022. PCS3117 further development was subject to FDA discussions and funding; PCS11T IND submission was hoped for in the first half of 2024.
- Management reported that COVID-19 and the rarity of the condition delayed PCS499 trial enrollment. Delays may extend timelines and raise costs; supply-chain disruption is also a risk.
- In interim PCS6422 data, the company reported increased 5-FU potency and reduced metabolism to F-Bal, but the effect was not sustained through day 7 after a single PCS6422 dose, prompting a protocol amendment and further testing.
- Processa may sell up to $15 million of shares to Lincoln Park, subject to agreement terms, and up to $30 million through its ATM program. No ATM shares were sold in the first half of 2022. These financing options may dilute existing holders; management cautioned that future capital may not be available on acceptable terms.
- At June 30, the company had approximately $5.5 million of potential future CRO services under cancellable contracts, with actual obligations dependent on trial progress and applicable cancellation provisions. It also recorded a $189,000 liability related to an amended Elion milestone.
- Substantial outstanding equity awards create potential dilution; the filing reported approximately $4.0 million of unrecognized RSU compensation expense. Shareholders approved additional equity-plan capacity in July 2022.
- Management concluded disclosure controls were effective as of June 30, 2022. The filing reported no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether clinical-trial enrollment, interim analyses, and reported target dates are achieved, particularly for PCS499, PCS12852, and PCS6422.
- Actual cash burn and runway as trial activity and costs change, and whether additional financing will be required sooner than management expects.
- The terms, availability, and potential dilution from Lincoln Park and ATM share sales, along with outstanding and newly approved equity awards.
- Whether PCS6422 can sustain DPD inhibition and demonstrate a tolerable, effective dosing regimen in ongoing trials.
- Potential changes to CRO commitments, license milestones, and other development costs as programs advance.