Processa Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; filed November 12, 2020. Processa is a clinical-stage biopharmaceutical company with no product revenue. Its development portfolio includes PCS499, PCS12852, PCS6422, PCS11T and PCS100.
Financial performance and position
| Metric | Q3 2020 / September 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q3 and first nine months of 2019 |
| Operating expenses | $2.96 million for Q3; $4.74 million for nine months | $1.00 million and $3.02 million, respectively |
| Net loss | $3.07 million for Q3; $4.68 million for nine months | $0.86 million and $2.58 million, respectively |
| Loss per share | $0.55 for Q3; $0.84 for nine months | $0.16 and $0.47, respectively |
| Cash and cash equivalents | $325,428 | $691,536 at December 31, 2019 |
| Operating cash used | $867,839 for the first nine months | $2.14 million in the first nine months of 2019 |
| Total assets / liabilities | $9.59 million / $4.06 million | $10.88 million / $2.87 million at December 31, 2019 |
| Current assets / current liabilities | $376,000 / $2.66 million | — |
| Stockholders’ equity | $5.53 million | $8.01 million at December 31, 2019 |
Gross debt included $805,000 principal on 8% senior convertible notes, $700,000 drawn on a related-party line of credit, and a $162,459 PPP loan. The senior notes were due December 15, 2020; the PPP loan carries 1% interest. No meaningful operating margin is available to assess because the company had no revenue.
Changes versus prior periods
- Q3 net loss increased to $3.07 million from $864,000; nine-month net loss rose to $4.68 million from $2.58 million. The $2.0 million Yuhan PCS12852 in-process R&D charge was a major nonrecurring contributor.
- Excluding that acquisition charge, reported R&D expense declined year over year: $533,000 versus $585,000 for Q3 and $1.46 million versus $1.80 million for the first nine months. G&A was broadly stable for Q3 and increased $63,000 for nine months, mainly due to taxes and licenses.
- Other expense increased substantially, principally reflecting interest and amortization of debt issuance costs, including a $197,403 warrant valuation associated with the 2019 senior notes.
- Cash used in operations fell to $868,000 from $2.14 million, while cash declined by $366,000 during the first nine months. Financing included $700,000 of related-party borrowing and the $162,459 PPP loan.
Pipeline, outlook and material developments
- PCS499: The Phase 2A patient portion was complete; database lock followed COVID-related delays in October 2020, with results still being finalized. The 12-patient open-label trial reported no serious adverse events and mild adverse events; two patients with ulcerated disease had reference ulcers close. These limited, uncontrolled observations do not establish efficacy. Recruitment for a randomized, placebo-controlled Phase 2B study was delayed from Q4 2020 to 2021, with management attributing the delay to fundraising.
- PCS12852: Licensed globally except South Korea from Yuhan for GI motility disorders. Management planned FDA discussions in early 2021 and a Phase 2A study; prior Yuhan studies were described as showing activity and tolerability.
- PCS6422: Licensed from Elion for development with capecitabine in advanced GI cancers. A Phase 1B study was expected to start in the first half of 2021. Earlier Phase 3 studies using a different regimen were unsuccessful; the filing says prior dosing may not have been optimal.
- PCS11T: The Aposense license became effective after the October offering. Management planned manufacturing and required toxicology work, with a Phase 1B study targeted for 2022–2023. PCS100 remained under evaluation after a prior FDA clinical hold was partially lifted.
- Financing after quarter-end: On October 6, 2020, the company completed a 4.8 million-share public offering at $4.00 per share, receiving approximately $17.1 million net. Management estimated this, together with available cash, would fund anticipated needs into Q4 2022, subject to assumptions and trial costs. The $700,000 related-party line plus accrued interest converted into 199,537 shares.
- The offering triggered anti-dilution issuances and enabled license transactions. The filing’s pro forma share count was 13,835,661, including the offering and specified conversions, anti-dilution shares, license shares and vested awards. The filing separately reports 10,565,566 shares outstanding as of October 31, 2020.
- Management expects losses and R&D and G&A costs to rise as clinical programs advance, and says additional capital may be needed if trials cost more or take longer than expected. COVID-19 may disrupt trials, enrollment, operations and access to financing. PPP forgiveness was not assured.
- Disclosure controls were judged ineffective; previously identified material weaknesses in entity-level controls, segregation of duties and documentation remained at September 30, 2020. Management said remediation efforts were continuing.
Most important facts for investors to verify
- PCS499 Phase 2A final results and whether the small, open-label ulcer observations are supported by controlled Phase 2B data.
- Whether the stated Q4 2022 funding runway remains achievable as three planned clinical programs advance, and whether further financing will be required.
- The fully diluted share count and dilution from the offering, anti-dilution provisions, license consideration, awards, notes and warrants; reconcile the October 31 reported count with the pro forma count.
- Senior-note maturity and conversion terms, PPP forgiveness or repayment status, and the completed conversion of related-party debt.
- Progress against FDA and license-agreement milestones, and the timing, cost and potential outcomes of PCS12852, PCS6422 and PCS11T trials.
- Remediation of the disclosed material weaknesses and the status of the PPP loan review and forgiveness application.