Business Context and Reporting Period
This Form 8-K, dated October 4, 2017, reports a material change in control and business strategy for Heatwurx, Inc. (now Processa Pharmaceuticals, Inc., trading symbol PCSA). The company completed an Asset Purchase Agreement with Promet Therapeutics, LLC, effectively abandoning its former specialty paving business to become an emerging clinical-stage biopharmaceutical company. The transaction closed on October 4, 2017, resulting in a change of management, board composition, and corporate focus.
Key Financial Metrics
- Revenue: The company has no history of generating revenue. Promet had no revenues for the years ended December 31, 2015 and 2016, nor for the six months ended June 30, 2017.
- Net Losses: From inception through June 30, 2017, the combined entities incurred net losses of approximately $17.3 million (Promet: $2.5 million; Heatwurx: $14.8 million).
- Cash Position: As of the report date, the company held approximately $2.25 million in cash and cash equivalents.
- Debt and Liquidity: Approximately $2.5 million of unpaid debt was converted into equity prior to the acquisition. The company raised $1.25 million in Senior Convertible Notes at closing. Management states current capital is insufficient to fund the total business plan, and auditors have raised substantial doubt about the company's ability to continue as a going concern.
- Capital Structure: Approximately 222,217,000 shares of common stock were issued to Promet, representing approximately 90% of the fully diluted outstanding shares. Total outstanding shares post-closing were approximately 246,908,000.
Material Changes Versus Prior Period
- Business Transformation: The company shifted from a specialty paving business (Heatwurx) to a pharmaceutical developer (Processa) focused on unmet medical needs.
- Management Changes: Former CEO John McGrain and Director Christopher Bragg resigned. David Young was appointed CEO and Chairman; Patrick Lin and Justin Yorke were appointed to the Board.
- Asset Acquisition: Acquired all assets of Promet Therapeutics, including the option to license CTP-499 from Concert Pharmaceuticals.
- Stock Symbol: Trading symbol changed from "HUWX" to "PCSA" effective October 10, 2017.
Guidance, Outlook, and Risks
Outlook and Strategy: The company plans to develop two primary indications for its lead candidate, CTP-499: Necrobiosis Lipoidica and radiation therapy effects in head and neck cancer. A pre-IND meeting with the FDA is scheduled for late October 2017. The company intends to raise additional capital through private placements of Senior Convertible Notes and equity offerings.
Material Risks:
- Going Concern: Auditors have expressed substantial doubt regarding the company's ability to continue operations without additional financing.
- Licensing Conditions: The exclusive option for CTP-499 requires the company to secure at least $8 million in funding; failure to meet this condition could result in the loss of rights to the drug.
- Development Risk: The company has no history of conducting clinical trials or commercializing products. Preclinical data may not predict human trial results.
- Market Risk: The stock trades on the OTCQB and is subject to "penny stock" regulations, which may limit liquidity.
Investor Verification Checklist
- Verify the status of the $8 million funding requirement necessary to maintain the CTP-499 license with Concert Pharmaceuticals.
- Confirm the outcome of the pre-IND meeting with the FDA scheduled for late October 2017.
- Review the terms of the Senior Convertible Notes issued to affiliated investors and the dilution impact of future tranches.
- Assess the company's cash burn rate against the reported $2.25 million cash balance to determine runway.
- Monitor the "penny stock" trading restrictions on the OTCQB and their impact on share liquidity.