Processa Pharmaceuticals, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Processa is a clinical-stage biopharmaceutical company developing modified oncology drugs; it reported no revenue and has no products for sale.
Financial performance and liquidity
| Metric | Q2 2023 | Six months 2023 | Prior-year comparison |
|---|---|---|---|
| Revenue | None | None | No revenue in comparable periods |
| Research and development expense | $1.69 million | $3.34 million | Down from $3.14 million and $5.18 million, respectively |
| General and administrative expense | $1.03 million | $3.48 million | Down from $2.03 million in Q2; up from $3.22 million for six months |
| Operating loss | $2.71 million | $6.82 million | Prior periods: $5.17 million and $8.40 million |
| Net loss | $2.61 million | $6.63 million | Prior periods: $5.16 million and $8.39 million |
| Basic and diluted loss per share | $0.10 | $0.27 | Prior periods: $0.32 and $0.53 |
| Operating cash used | Not separately stated | $4.18 million | $4.13 million used in first half 2022 |
Cash and cash equivalents were $8.68 million at June 30, 2023, versus $6.50 million at year-end 2022. First-half financing generated $6.35 million net proceeds from equity issuance; cash increased $2.17 million. Total assets were $10.09 million and total liabilities were $0.93 million. Liabilities primarily included lease obligations; the filing reports no borrowings. Current assets were $9.90 million and current liabilities $0.82 million. No meaningful operating margin or gross margin is reported because the company had no revenue.
Material changes and notable items
- First-half R&D expense declined mainly because the PCS12852 trial was completed, the PCS499 trial was terminated, and the PCS499 intangible asset had been fully impaired in 2022. No amortization expense was recorded in 2023.
- First-half G&A expense increased $259,000 year over year, including a $1.31 million expense for warrants issued to Spartan Capital, partly offset by lower employee stock compensation.
- The company raised approximately $7.0 million gross ($6.4 million net) through equity sales, issuing 8,432,192 shares. Common shares issued increased from 16.1 million at December 31, 2022 to 24.6 million at June 30, 2023. The company also authorized 100 million common shares, up from 50 million.
- Spartan Capital received warrants to purchase 3,160,130 shares at $1.02 per share, exercisable through April 2026. Potential dilution also includes other outstanding options, warrants, and equity awards.
Outlook, risks, and contingencies
- Management expects continuing losses and negative operating cash flow. It estimated June 30 cash could fund the current NGC-Capecitabine trial, preparation for future trials, closeout of PCS499 and PCS12852, and administrative costs through Q2 2024. The company nevertheless stated that substantial doubt exists about its ability to continue as a going concern within one year without additional funding.
- Additional capital is needed for longer-term plans and future NGC trials. Funding may come from equity, debt, partnerships, licensing, or other transactions; availability and acceptable terms are not assured. Equity financing would dilute shareholders, while partnerships or licensing could require surrendering valuable rights. Without financing, trials could be delayed, reduced, or suspended.
- NGC-Capecitabine Phase 1B enrollment was ongoing; the final cohort was expected to enroll in Q4 2023. A prior regimen caused dose-limiting toxicities in two patients, including one patient death. Management began preparing for a Phase 2 study but said additional funding is required.
- Management planned FDA discussions and Phase 2B protocol submission for NGC-Gemcitabine in the first half of 2024, subject to funding. IND-enabling and toxicology work for NGC-Irinotecan was planned for 2023–2024, also subject to funding.
- The PCS499 trial was terminated after severe enrollment difficulties; the company was seeking a licensee or partner for PCS499 and PCS12852, and could return PCS499 to its licensor if no partner is found. Management reported no safety concerns in those trials.
- At June 30, CRO contracts represented up to $2.4 million of future services. The company reported no material legal proceedings and no off-balance-sheet arrangements. Cash deposits exceeded FDIC insurance limits.
- Nasdaq notified the company in March 2023 that its share price had failed the $1.00 minimum bid-price requirement. The stated compliance deadline was September 18, 2023; delisting could impair liquidity and future financing access.
- After quarter-end, George Ng became CEO and a director on August 8, 2023. His compensation included a $400,000 annual salary, up to $100,000 in bonus, and 800,000 RSUs, including performance-based awards tied to raising gross proceeds. David Young became President, Research and Development; COO R. Michael Floyd’s resignation was effective August 31.
Key facts for investors to verify
- Cash runway assumptions, financing plans, and the going-concern warning; in particular, the difference between management’s stated Q2 2024 administrative-cost runway and its warning that cash alone may not fund operations for one year.
- Clinical-trial status, Phase 2 funding requirements, and safety findings for NGC-Capecitabine, including the reported patient death associated with a dose-limiting toxicity.
- Potential dilution from issued shares, warrants, RSUs, options, and the increased authorized share count.
- Progress toward Nasdaq minimum-bid-price compliance and any effect on the company’s ability to raise capital.
- Prospects for licensing or partnering PCS499 and PCS12852, and the cost and timing of CRO and other development obligations.