Business Context and Reporting Period
Processa Pharmaceuticals, Inc., an emerging growth company, filed this Form 8-K on May 25, 2018, to report the entry into a material definitive agreement. The company is focused on the research and development of its lead product candidate, PCS-499.
Key Financial Metrics and Capital Structure
- Recent Capital Raise: Sold 792,952 shares of Common Stock at $2.27 per share, generating $1.80 million in gross proceeds.
- Debt Conversion: Converting $2.58 million of mandatory convertible 8% Senior Notes into 1,323,704 shares of Common Stock at $2.043 per share.
- Total Private Placement: Combined with a prior $2.5 million tranche, the total capital raised through private placements in 2018 is $6.88 million.
- Transaction Costs: Placement agent fees totaled approximately $108,000 for the new sale and $144,955 for the note conversion.
- Warrants Issued: Investors received warrants to purchase one share for each share purchased (exercise price $2.724 for new shares; $2.452 for converted notes). Placement agents also received warrants.
Material Changes and Use of Proceeds
The primary material change is the reduction of debt through the conversion of $2.58 million in senior notes and the infusion of $1.80 million in new equity. The filing does not provide specific revenue, profit, or cash flow metrics for a reporting period, as this is a current report on a specific transaction rather than a periodic financial statement.
Proceeds from the $1.80 million placement are designated to fund the Phase 2 Necrobiosis Lipoidica Trial, scheduled to begin in the fourth quarter of 2018. Remaining proceeds from the total $6.88 million raised are intended for general R&D of PCS-499 and corporate purposes.
Outlook, Risks, and Unusual Items
- Future Closings: The company may conduct additional closings until June 29, 2018, or until the Maximum Offering Amount is reached.
- Anti-Dilution Protection: The Common Stock issued in this transaction carries full ratchet anti-dilution protection. If the company issues equity below $2.27 per share (excluding specific exceptions like employee plans or strategic acquisitions), the purchase price will be adjusted downward, and new shares issued to the investor.
- Exceptions: Anti-dilution adjustments will not be triggered by issuances related to the ongoing private placement, warrant exercises, conversions of existing debentures, stock splits, or employee/director issuances.
Investor Verification Checklist
- Verify the exact terms of the "Maximum Offering Amount" referenced for potential future closings.
- Confirm the dilution impact of the full ratchet anti-dilution provision on existing shareholders if future financing occurs below $2.27 per share.
- Review the specific timeline and milestones for the Phase 2 Necrobiosis Lipoidica Trial.
- Check subsequent filings to confirm if the $2.58 million note conversion was fully executed as described.