Processa Pharmaceuticals, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 30, 2022. Processa is a clinical-stage biopharmaceutical company with no marketed products or revenue. Its pipeline comprised four clinical-stage candidates and one in nonclinical development.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $6.88 million | $3.17 million |
| Acquired in-process R&D expense | $0.57 million | $8.70 million |
| General and administrative expense | $4.69 million | $3.26 million |
| Operating loss | $12.13 million | $15.14 million |
| Net loss | $11.43 million | $14.41 million |
| Net loss per share, basic and diluted | $0.75 | $2.54 |
| Net cash used in operating activities | $8.72 million | $3.14 million |
| Cash and cash equivalents, year-end | $16.50 million | $15.42 million |
Gross margin and operating margins are not meaningful because the company had no revenue. Net loss narrowed year over year primarily because 2020 included $8.7 million of acquired in-process R&D expense; R&D spending and operating cash use increased in 2021 as clinical programs advanced. The 2021 net loss included $3.41 million of stock-based compensation and a $0.53 million deferred tax benefit. The 2020 loss per share also reflected a full-ratchet anti-dilution charge.
At December 31, 2021, total assets were $26.46 million, total liabilities $0.98 million, and stockholders’ equity $25.49 million. Current assets were $18.33 million versus current liabilities of $0.97 million. The company reported no remaining PPP loan balance after loan forgiveness in 2021; operating lease liabilities totaled $78,463. It had an accumulated deficit of $36.82 million. Management said cash on hand was expected to fund operations for at least 12 months under current plans, excluding potential ATM or Lincoln Park proceeds; additional funding will be needed for longer-term plans.
Material changes and business developments
- R&D expense rose by $3.71 million, mainly due to PCS499 and PCS6422 clinical-trial costs, PCS12852 pre-IND work, and added development personnel.
- G&A expense increased by $1.42 million, including higher professional fees, compensation, insurance, and office costs.
- In February 2021, a private placement generated $9.9 million in net proceeds. In the fourth quarter, the ATM program generated $174,000 net from 21,597 shares. The company had a $75 million shelf registration and a $30 million ATM authorization.
- After year-end, Processa entered a Lincoln Park purchase agreement for up to $15 million of stock, subject to terms and share limits, and issued 123,609 commitment shares. In March 2022, it also repurchased 100,000 shares from Aposense for $300,000.
- Common shares outstanding were 15,710,246 at year-end 2021 and 15,843,621 as of March 24, 2022. Authorized common shares increased from 30 million to 50 million effective January 1, 2022.
Pipeline, outlook, and key risks
- PCS499: The Phase 2B randomized, placebo-controlled study for ulcerative necrobiosis lipoidica dosed its first patient in May 2021. Enrollment was delayed by COVID-19. The company planned an interim analysis and trial enrollment completion by year-end 2022, with a potential Phase 3 in 2023 depending on results.
- PCS12852: FDA clearance to proceed with a Phase 2A gastroparesis study was received in October 2021. Enrollment was expected to begin in the first half of 2022, with final analysis expected in the first half of 2023.
- PCS3117: Licensed in June 2021. The company planned to develop and refine biomarkers over the following 6–12 months to identify potentially responsive patients, with a Phase 2B or adaptive Phase 3 anticipated in 2023. Prior studies showed some activity but did not meet a prespecified progression-free-survival criterion in one pancreatic cancer study.
- PCS6422: Interim Phase 1B data showed DPD inhibition and substantially increased 5-FU exposure, with no dose-limiting toxicities, related adverse events above Grade 1, or hand-foot syndrome reported in the initial cohorts. However, the effect was not sustained through the full seven-day capecitabine dosing period. A modified protocol was submitted in February 2022; the company expected to restart the study in the second quarter of 2022, define regimens by year-end 2022, begin a Phase 2B or 3 in 2023–2024, and submit an NDA in 2027–2028.
- PCS11T: In nonclinical development. The company planned manufacturing and IND-enabling toxicology work, targeting an IND in 2023 and subsequent Phase 1B study.
Management expected R&D costs to increase significantly in 2022 as it continued PCS499 and PCS6422 trials, began PCS12852 clinical work, developed a PCS3117 biomarker assay, and generated IND-enabling data for PCS11T. The company said it had no contracted revenue or immediate sales prospects and expected operating losses and negative operating cash flow to continue. It may seek additional equity, debt, licensing, or collaboration financing; equity issuance could dilute shareholders.
Principal risks include clinical efficacy, safety, enrollment and timing uncertainty; COVID-19-related trial and supply disruptions; limited cash and dependence on future financing; reliance on third-party CROs and manufacturers; competitive and reimbursement pressures; and dependence on licensed intellectual property and compliance with license milestones. The company also disclosed $5.3 million of potential future CRO services under agreements, with actual obligations dependent on trial progress. Its financial statements received an unmodified audit opinion; the auditor highlighted the PCS499 intangible asset and acquired in-process R&D accounting as critical audit matters. Management reported that disclosure controls and internal control over financial reporting were effective at year-end, following remediation of previously reported material weaknesses.
Investor verification priorities
- Confirm current cash, quarterly cash burn, remaining ATM capacity, and actual availability and dilution from the Lincoln Park facility.
- Track PCS499 enrollment and interim findings, including the effect of COVID-19 delays and any resulting timeline or cost changes.
- Review the amended PCS6422 protocol and subsequent data on duration of DPD inhibition, dosing, safety, and capecitabine exposure.
- Verify PCS12852 trial initiation and enrollment, and progress toward the PCS3117 biomarker strategy and PCS11T IND-enabling milestones.
- Assess whether projected timelines and financing needs remain achievable, and review license obligations, potential milestone/royalty payments, and the carrying value of the PCS499 intangible asset.