Processa Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Processa is a clinical-stage biopharmaceutical company developing five drug candidates; it reported no revenue and has no immediate sales prospects.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $1.615 million | $0.427 million | $3.086 million | $0.929 million |
| In-process R&D acquisition expense | $0.516 million | $0 | $0.516 million | $0 |
| General and administrative expense | $1.329 million | $0.375 million | $2.051 million | $0.859 million |
| Operating loss | $(3.460) million | $(0.802) million | $(5.653) million | $(1.788) million |
| Net loss | $(3.157) million | $(0.733) million | $(5.257) million | $(1.608) million |
| Basic and diluted loss per share | $(0.20) | $(0.13) | $(0.35) | $(0.29) |
Margins are not meaningful because the company had no revenue. Q2 R&D growth primarily reflected higher clinical and preclinical costs as PCS499 and PCS6422 trials advanced and PCS12852 preparations continued. G&A rose with professional fees, payroll and stock-based compensation.
For the six months, operating cash outflow was $4.437 million, compared with $0.897 million a year earlier. Financing provided $9.852 million, chiefly from a February private placement; cash increased $5.415 million to $20.831 million. At June 30, current assets were $22.566 million and current liabilities were $1.161 million. Total liabilities were $1.896 million, including lease liabilities and amounts due to the PCS3117 licensor; there was no PPP loan balance at quarter-end. The company received notice of PPP loan forgiveness in August 2021.
Stockholders’ equity was $29.242 million, and accumulated deficit was $30.652 million. The February placement generated $9.876 million net proceeds from 1,321,132 shares, increasing shares outstanding; another 44,689 shares were issued to Ocuphire under the PCS3117 license agreement. The company estimated approximately $4.1 million of future CRO and subcontractor services, subject to trial progress and cancellation terms.
Material changes and business developments
- Losses and operating cash use increased substantially year over year as clinical development spending, staffing, professional fees and stock-based compensation increased.
- In June, Processa licensed PCS3117 from Ocuphire for most territories, subject to exclusions. Consideration included cash, shares and assumed liabilities, with additional potential development, regulatory and sales milestones and royalties.
- Processa began the PCS499 Phase 2B trial in May. Its PCS6422 Phase 1B trial enrolled its first patient on August 2, after quarter-end. PCS12852 remained in IND preparation during the period.
- The PPP loan and accrued interest forgiveness contributed $163,771 of other income in the six-month results. The February 2021 private placement was the principal financing source during the period.
Outlook, risks and other notable matters
- Management estimated that June 30 cash would fund budgeted operations well into 2023. This estimate depends on assumptions; losses and negative operating cash flow are expected to continue, and additional financing may be needed sooner if costs rise, trials take longer, or plans expand. No assurance was given that future funding will be available on acceptable terms.
- Planned milestones included a PCS499 interim analysis in the first half of 2022, trial completion in the second half of 2022 and a possible Phase 3 start in 2023, depending on results. The company planned a PCS12852 IND submission in Q3 2021 and Phase 2A enrollment in the first half of 2022. PCS3117 biomarker work was expected to continue, with a possible Phase 2B start in the second half of 2022. PCS6422 trial timing and PCS11T IND-enabling work remained dependent on results and development progress.
- Management expected R&D and G&A costs to increase as trials, manufacturing, biomarker development and preclinical work advance. Development, regulatory, trial enrollment, manufacturing, competition, intellectual-property and financing risks could affect programs and cash needs.
- COVID-19 had not materially adversely affected operations or timelines to date, according to the filing, but future effects on trials, suppliers, financing and expenditures remained uncertain.
- Disclosure controls were deemed ineffective. Previously identified material weaknesses—including entity-level controls, inadequate segregation of duties and insufficiently documented accounting and reporting procedures—remained at June 30. Management described remediation steps but reported that weaknesses continued.
- No material legal proceedings or material changes to previously reported risk factors were disclosed. The filing reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether cash burn and clinical spending remain consistent with management’s estimate of funding budgeted operations into 2023, and whether additional capital is required.
- Trial enrollment, interim and final results, regulatory feedback, and whether stated pipeline milestones remain achievable.
- The full potential economics of the Ocuphire license, including milestone and royalty obligations, and the status of the estimated CRO commitments.
- Progress in remediating the disclosed material weaknesses and whether disclosure controls are subsequently assessed as effective.
- Potential share dilution from future equity or convertible financing, outstanding awards and warrants, and the effect of clinical or regulatory setbacks.