Processa Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. The filing was signed November 14, 2019. Processa is a clinical-stage biopharmaceutical company with no approved products and no revenue.
Financial performance and position
| Metric | Q3 2019 | Nine months 2019 | Comparison |
|---|---|---|---|
| Revenue | $0 | $0 | No revenue in the comparable 2018 periods |
| Research and development | $585,000 | $1.804 million | Down 4% and 27%, respectively, from 2018 |
| General and administrative | $419,000 | $1.219 million | Down 7% and 7%, respectively |
| Operating loss | $1.004 million | $3.023 million | Down from $1.063 million and $3.783 million, respectively |
| Net loss | $864,000 | $2.583 million | Q3 loss increased $11,000; nine-month loss narrowed $572,000 |
| Loss per share, basic and diluted | $0.02 | $0.07 | 2018: $0.02 and $0.09 |
| Cash used in operating activities | Not provided for quarter | $1.237 million | Compared with $3.244 million in 2018 |
At September 30, cash and cash equivalents were $504,302, down from $1.741 million at December 31, 2018. Current assets were $725,245 and current liabilities were $291,681. Total assets were $10.821 million; total liabilities were $2.151 million, including a $1.692 million deferred tax liability. The company had no senior convertible notes outstanding at quarter-end. No profitability or operating margin was reported; the company remains loss-making.
The nine-month improvement in operating cash use reflected lower direct cash costs, including reduced clinical and preclinical spending and PoC Capital payments made directly to the CRO. Noncash amortization and stock-based compensation were higher year over year. Cash provided by financing activities was zero in the 2019 nine-month period, versus $2.843 million in 2018.
Material developments and outlook
- PCS-499: The Phase 2a trial for necrobiosis lipoidica was fully enrolled at 12 patients on August 23, 2019. The company reported no serious adverse events and said the 1.8 g/day dose appeared generally well tolerated; six patients at that dose reported mild treatment-related adverse events. These are interim company-reported observations, not evidence of efficacy. Interim data and an FDA meeting were planned for the coming weeks and before year-end, respectively.
- HT-100: Processa signed an exclusive license with Akashi Therapeutics on August 29, 2019, paying $10,000 upfront. The agreement includes up to $12 million in development and regulatory milestone payments, plus sales milestones and royalties. Development is contingent on obtaining adequate funding. The filing notes a prior serious adverse event in a pediatric DMD trial, after which the FDA removed the clinical hold and specified conditions for resumption.
- Financing: Two related-party revolving credit lines provide up to $700,000 each, or $1.4 million total, at 8% interest; none had been drawn as of the report. The CEO also leads both lenders, and CorLyst is a significant shareholder. By November 5, $745,000 of 8% senior convertible notes had been received in escrow, not recorded at September 30; the company planned to close escrow in Q4. Note conversion and warrant terms could dilute shareholders.
- Funding outlook and going concern: Management said available resources were expected to be adequate to complete the current Phase 2a trial, but not to fund future trials or HT-100 development. The company estimated total Phase 2a costs at $1.5–$1.6 million and expected to fund the remaining $600,000–$700,000 through note proceeds and, as needed, the credit lines. It stated that without additional funding, cash would not be sufficient for one year or more after the financial statements became available, and substantial doubt existed about its ability to continue as a going concern. Financing may be unavailable or dilutive; trials could be delayed, reduced, or suspended.
- Other items: The remaining $230,000 of prior senior convertible notes and accrued interest was converted into 126,741 shares and warrants in July. PoC Capital’s clinical funding commitment was amended to $900,000 and reported paid in full; pledged collateral shares and warrants were forfeited, with shares to be retired. The board authorized a potential 4-for-1 to 10-for-1 reverse split on October 31, subject to regulatory approval and board discretion.
- Controls and risks: Management concluded disclosure controls were not effective. Previously identified material weaknesses—entity-level controls, segregation of duties, and documentation of accounting and reporting procedures—persisted. The filing reported no material change to the risk factors in the prior Form 10-K and no material legal proceedings.
Important facts for investors to verify
- Whether the $745,000 note financing closed, how much was ultimately raised, and the resulting conversion, warrant, and dilution terms.
- Current cash runway, actual use or availability of the related-party credit lines, and whether additional capital is required to complete the trial.
- PCS-499 interim and final trial data, safety findings, FDA feedback, and the timing, design, and funding of any next-stage trial.
- HT-100 development plans, required funding, regulatory conditions, and potential milestone, royalty, and safety obligations.
- The filing’s stockholders’ equity figures appear inconsistent: the balance sheet reports $8.671 million at September 30, while the statement of changes in equity reports $8.608 million. Investors should confirm the correct amount.
- Progress in remediating the disclosed material weaknesses and any subsequent reverse-split action.