Processa Pharmaceuticals, Inc. — Q1 2021 10-Q
Reporting period: Three months ended March 31, 2021. Processa is a clinical-stage biopharmaceutical company with no product revenue, developing drug candidates for conditions with unmet medical needs.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $0 | $0; no revenue under contract or immediate sales prospects |
| Research and development expense | $1.48 million | $0.50 million; increased $0.97 million |
| General and administrative expense | $0.72 million | $0.48 million; increased $0.23 million |
| Operating loss | $2.19 million | $0.99 million |
| Net loss | $2.10 million | $0.87 million |
| Basic and diluted loss per share | $0.14 | $0.16 |
| Cash used in operating activities | $2.24 million | $0.55 million |
| Cash and cash equivalents | $23.05 million at March 31 | $15.42 million at December 31, 2020 |
R&D expense rose mainly because of clinical-trial and preclinical activity for PCS499, PCS6422, and PCS12852. G&A increased primarily with professional fees and payroll, partly offset by lower franchise taxes. The company reported no revenue, so profit margins are not meaningful. It recorded a $89,248 income tax benefit in Q1 2021.
Q1 financing provided $9.88 million net from a February private placement. The company sold 1,321,132 shares at $7.75 per share for $10.2 million gross proceeds, diluting existing shareholders. At March 31, total liabilities were $2.00 million, including $162,459 of PPP loan debt and $800,000 due to a licensor. Current assets were $24.55 million and current liabilities $1.10 million. Management believes cash on hand will fund budgeted operations through 2023, but longer-term plans and unplanned trials may require additional financing.
Business developments and outlook
- PCS499: Following a Phase 2A study, Processa planned to begin recruiting for a randomized, placebo-controlled Phase 2B study in ulcerated necrobiosis lipoidica in Q2 2021, with an interim analysis planned for Q1 2022. The Phase 2A trial reported no serious adverse events; the filing describes ulcer healing in two patients but notes the small study and need for further evaluation.
- PCS6422: The company planned to begin recruitment in Q2 2021 for a Phase 1B dose-escalation study combining the candidate with capecitabine in advanced GI tumors.
- PCS12852: Processa planned to submit an IND in Q3 2021 and expected a Phase 2A study to begin around year-end 2021 or early 2022, subject to IND submission and approval.
- PCS11T: The company planned manufacturing and required toxicology work, with a Phase 1B study targeted for 2022.
Management expects R&D and G&A spending, operating losses, and negative operating cash flow to increase as trials advance. The company cautioned that trial costs, enrollment timing, regulatory outcomes, competition, financing access, and COVID-19-related disruptions could affect its plans and cash needs. It reported that COVID-19 had not materially adversely affected operations to date, while future effects remained uncertain.
Other material matters and risks
- Processa disclosed approximately $5.1 million of potential future payments for CRO services, subject to trial progress and termination terms.
- The PPP lender recommended full forgiveness to the Small Business Administration, but forgiveness was not assured as of the filing.
- Management concluded disclosure controls were not effective and that previously identified material weaknesses in internal control over financial reporting remained at March 31, 2021. The company reported steps to strengthen cash-disbursement approvals and ongoing remediation efforts.
- No material changes to the risk factors in the 2020 Form 10-K were reported. The company said it was not party to material legal proceedings and had no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the planned clinical-trial enrollment, IND filing, and interim-analysis timelines were met, and the resulting safety and efficacy data.
- Whether cash spending and trial costs remain consistent with management’s estimate of funding budgeted operations through 2023, and whether additional capital is needed.
- Whether the PPP loan received forgiveness and how the $5.1 million of potential CRO commitments develop.
- Progress in remediating the disclosed material weaknesses and improving disclosure controls.
- The impact of future equity or debt financing on liquidity and shareholder dilution.