United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,September 30, 2023
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to ____
Commission File Number 001-39531
Processa Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 45-1539785 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
7380 Coca Cola Drive, Suite 106,
Hanover, Maryland 21076
((443)443) 776-3133
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.0001 par value per share | PCSA | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of outstanding shares of the registrant’s common stock at May 9,as of November 1, 2023 was .
PROCESSA PHARMACEUTICALS, INC.
TABLE OF CONTENTS
| 2 |
Part I: Financial InformationPART 1: FINANCIAL INFORMATION
ItemITEM 1: Financial StatementsFINANCIAL STATEMENTS
Processa Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 10,741,602 | $ | 6,503,595 | ||||
| Prepaid expenses and other | 1,477,519 | 1,883,134 | ||||||
| Total Current Assets | 12,219,121 | 8,386,729 | ||||||
| Property and Equipment, net | - | - | ||||||
| Other Assets | ||||||||
| Operating lease right-of-use assets, net of accumulated amortization | 207,787 | 227,587 | ||||||
| Security deposit | 5,535 | 5,535 | ||||||
| Total Other Assets | 213,322 | 233,122 | ||||||
| Total Assets | $ | 12,432,443 | $ | 8,619,851 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Current maturities of operating lease liability | $ | 81,166 | $ | 78,896 | ||||
| Accounts payable | 316,709 | 327,548 | ||||||
| Due to licensor | 189,000 | 189,000 | ||||||
| - | 51 | |||||||
| Accrued expenses | 1,573,961 | 403,061 | ||||||
| Total Current Liabilities | 2,160,836 | 998,556 | ||||||
| Non-current Liabilities | ||||||||
| Non-current operating lease liability | 129,358 | 150,554 | ||||||
| Total Liabilities | 2,290,194 | 1,149,110 | ||||||
| Commitments and Contingencies | - | - | ||||||
| Stockholders’ Equity | ||||||||
| Common stock, par value $, shares authorized: issued and outstanding at March 31, 2023 and issued and outstanding at December 31, 2022 | 2,463 | 1,614 | ||||||
| Additional paid-in capital | 78,709,420 | 72,016,688 | ||||||
| Treasury stock at cost — shares at March 31, 2023 and December 31, 2022 | (300,000 | ) | (300,000 | ) | ||||
| Accumulated deficit | (68,269,634 | ) | (64,247,561 | ) | ||||
| Total Stockholders’ Equity | 10,142,249 | 7,470,741 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 12,432,443 | $ | 8,619,851 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Processa Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| 2023 | 2022 | |||||||
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating Expenses | ||||||||
| Research and development expenses | $ | 1,627,480 | $ | 2,043,984 | ||||
| General and administrative expenses | 2,478,055 | 1,184,730 | ||||||
| Operating Loss | (4,105,535 | ) | (3,228,714 | ) | ||||
| Other Income (Expense), net | 83,462 | 1,583 | ||||||
| Net Operating Loss Before Income Tax Benefit | (4,022,073 | ) | (3,227,131 | ) | ||||
| Income Tax Benefit | - | - | ||||||
| Net Loss | $ | (4,022,073 | ) | $ | (3,227,131 | ) | ||
| Net Loss Per Common Share - Basic and Diluted | $ | (0.18 | ) | $ | (0.20 | ) | ||
| Weighted Average Common Shares Used to Compute Net Loss Per Common Shares - Basic and Diluted | 22,770,789 | 15,831,118 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Processa Pharmaceuticals, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Equity
(Unaudited)
| Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury Stock | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||
| Balance at January 1, 2022 | 15,710,246 | $ | 1,571 | $ | 62,306,861 | - | $ | - | $ | (36,823,332 | ) | $ | 25,485,100 | |||||||||||||||
| Stock-based compensation | 103,670 | 10 | 828,887 | - | - | - | 828,897 | |||||||||||||||||||||
| Acquisition of treasury stock | - | - | - | (100,000 | ) | (300,000 | ) | - | (300,000 | ) | ||||||||||||||||||
| Shares issued in connection with purchase agreement | 123,609 | 12 | 449,988 | - | - | - | 450,000 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,227,131 | ) | (3,227,131 | ) | |||||||||||||||||||
| Balance, March 31, 2022 | 15,937,525 | $ | 1,593 | $ | 63,585,736 | (100,000 | ) | $ | (300,000 | ) | $ | (40,050,463 | ) | $ | 23,236,866 | |||||||||||||
| Balance | 15,937,525 | $ | 1,593 | $ | 63,585,736 | (100,000 | ) | $ | (300,000 | ) | $ | (40,050,463 | ) | $ | 23,236,866 | |||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury Stock | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||
| Balance at January 1, 2023 | 16,135,400 | $ | 1,614 | $ | 72,016,688 | (100,000 | ) | $ | (300,000 | ) | $ | (64,247,561 | ) | $ | 7,470,741 | |||||||||||||
| Stock-based compensation | 63,882 | 6 | 341,498 | - | - | - | 341,504 | |||||||||||||||||||||
| Shares issued in connection with capital raises, net of transaction costs | 8,432,192 | 843 | 6,351,234 | - | - | - | 6,352,077 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (4,022,073 | ) | (4,022,073 | ) | |||||||||||||||||||
| Balance, March 31, 2023 | 24,631,474 | $ | 2,463 | $ | 78,709,420 | (100,000 | ) | $ | (300,000 | ) | $ | (68,269,634 | ) | $ | 10,142,249 | |||||||||||||
| Balance | 24,631,474 | $ | 2,463 | $ | 78,709,420 | (100,000 | ) | $ | (300,000 | ) | $ | (68,269,634 | ) | $ | 10,142,249 | |||||||||||||
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 6,860,672 | $ | 6,503,595 | ||||
| Prepaid expenses and other | 1,046,790 | 1,883,134 | ||||||
| Total Current Assets | 7,907,462 | 8,386,729 | ||||||
| Property and Equipment, net | 2,694 | - | ||||||
| Other Assets | ||||||||
| Operating lease right-of-use assets, net | 167,035 | 227,587 | ||||||
| Security deposit | 5,535 | 5,535 | ||||||
| Total Other Assets | 172,570 | 233,122 | ||||||
| Total Assets | $ | 8,082,726 | $ | 8,619,851 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Current maturities of operating lease liability | $ | 82,744 | $ | 78,896 | ||||
| Accounts payable | 346,299 | 327,548 | ||||||
| Due to licensor | 189,000 | 189,000 | ||||||
| Due to related parties | 5,791 | 51 | ||||||
| Accrued expenses | 202,236 | 403,061 | ||||||
| Total Current Liabilities | 826,070 | 998,556 | ||||||
| Non-current Liabilities | ||||||||
| Non-current operating lease liability | 88,777 | 150,554 | ||||||
| Total Liabilities | 914,847 | 1,149,110 | ||||||
| Commitments and Contingencies | - | - | ||||||
| Stockholders’ Equity | ||||||||
| Common stock, par value $, shares authorized: issued and outstanding at September 30, 2023, and issued and outstanding at December 31, 2022 | 2,473 | 1,614 | ||||||
| Additional paid-in capital | 80,429,556 | 72,016,688 | ||||||
| Treasury stock at cost — shares at September 30, 2023 and December 31, 2022 | (300,000 | ) | (300,000 | ) | ||||
| Accumulated deficit | (72,964,150 | ) | (64,247,561 | ) | ||||
| Total Stockholders’ Equity | 7,167,879 | 7,470,741 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 8,082,726 | $ | 8,619,851 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Processa Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash FlowsOperations
(Unaudited)
| 2023 | 2022 | |||||||
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (4,022,073 | ) | $ | (3,227,131 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Non-cash lease expense for right-of-use assets | 19,800 | 22,559 | ||||||
| Amortization of issuance costs | - | 3,113 | ||||||
| Amortization of intangible asset | - | 197,124 | ||||||
| Stock-based compensation | 341,504 | 828,897 | ||||||
| Recording of warrant to be issued to purchase 3,160,130 shares of common stock in connection with a consulting agreement | 1,310,875 | - | ||||||
| Net changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other | 405,615 | 216,717 | ||||||
| Operating lease liability | (18,926 | ) | (23,195 | ) | ||||
| Accounts payable | (10,839 | ) | 97,187 | |||||
| Due (from) to related parties | (51 | ) | (1,772 | ) | ||||
| Other receivables | - | 70,274 | ||||||
| Accrued expenses | (139,975 | ) | 13,301 | |||||
| Net cash used in operating activities | (2,114,070 | ) | (1,802,926 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Net proceeds from common stock issued | 6,352,077 | - | ||||||
| Acquisition of treasury stock | - | (300,000 | ) | |||||
| Net cash provided by (used in) financing activities | 6,352,077 | (300,000 | ) | |||||
| Net Increase (Decrease) in Cash | 4,238,007 | (2,102,926 | ) | |||||
| Cash and Cash Equivalents – Beginning of Period | 6,503,595 | 16,497,581 | ||||||
| Cash and Cash Equivalents – End of Period | $ | 10,741,602 | $ | 14,394,655 | ||||
| Non-Cash Financing Activities | ||||||||
| Issuance of shares of common stock in connection with the Purchase Agreement with Lincoln Park | $ | - | $ | 450,000 | ||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| Research and development | $ | 1,151,740 | $ | 3,136,838 | $ | 4,478,793 | $ | 8,319,907 | ||||||||
| General and administrative | 1,015,872 | 2,920,280 | 4,508,818 | 6,137,674 | ||||||||||||
| Operating Loss | (2,167,612 | ) | (6,057,118 | ) | (8,987,611 | ) | (14,457,581 | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest income, net | 85,661 | 36,708 | 271,022 | 45,672 | ||||||||||||
| Net Loss | $ | (2,081,951 | ) | $ | (6,020,410 | ) | $ | (8,716,589 | ) | $ | (14,411,909 | ) | ||||
| Net Loss per Common Share - Basic and Diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted Average Common Shares Used to Compute Net Loss Applicable to Common Shares - Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
Processa Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Three and Nine Months Ended September 30, 2022 and 2023
(Unaudited)
| Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury Stock | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||
| Balance at January 1, 2022 | 15,710,246 | $ | 1,571 | $ | 62,306,861 | $ | - | $ | - | $ | (36,823,332 | ) | $ | 25,485,100 | ||||||||||||||
| Stock-based compensation | 103,670 | 10 | 828,887 | - | - | - | 828,897 | |||||||||||||||||||||
| Acquisition of treasury stock | (100,000 | ) | (300,000 | ) | (300,000 | ) | ||||||||||||||||||||||
| Shares issued in connection with purchase agreement | 123,609 | 12 | 449,988 | - | - | - | 450,000 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,227,131 | ) | (3,227,131 | ) | |||||||||||||||||||
| Balance, March 31, 2022 | 15,937,525 | 1,593 | 63,585,736 | (100,000 | ) | (300,000 | ) | (40,050,463 | ) | 23,236,866 | ||||||||||||||||||
| Stock-based compensation | (18,208 | ) | (1 | ) | 2,009,370 | - | - | - | 2,009,369 | |||||||||||||||||||
| Net loss | - | - | - | - | - | (5,164,368 | ) | (5,164,368 | ) | |||||||||||||||||||
| Balance, June 30, 2022 | 15,919,317 | 1,592 | 65,595,106 | (100,000 | ) | (300,000 | ) | (45,214,831 | ) | 20,081,867 | ||||||||||||||||||
| Balance | 15,919,317 | 1,592 | 65,595,106 | (100,000 | ) | (300,000 | ) | (45,214,831 | ) | 20,081,867 | ||||||||||||||||||
| Stock-based compensation | 86,888 | 9 | 3,213,806 | - | - | - | 3,213,815 | |||||||||||||||||||||
| Shares withheld to pay income taxes on stock-based compensation | (11,118 | ) | (1 | ) | (35,246 | ) | - | - | - | (35,247 | ) | |||||||||||||||||
| Net loss | - | - | - | - | - | (6,020,410 | ) | (6,020,410 | ) | |||||||||||||||||||
| Balance, September 30, 2022 | 15,995,087 | $ | 1,600 | $ | 68,773,666 | (100,000 | ) | $ | (300,000 | ) | $ | (51,235,241 | ) | $ | 17,240,025 | |||||||||||||
| Balance | 15,995,087 | $ | 1,600 | $ | 68,773,666 | (100,000 | ) | $ | (300,000 | ) | $ | (51,235,241 | ) | $ | 17,240,025 | |||||||||||||
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Paid-In | Treasury Stock | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Deficit | Total | ||||||||||||||||||||||
| Balance at January 1, 2023 | 16,135,400 | $ | 1,614 | $ | 72,016,688 | (100,000 | ) | $ | (300,000 | ) | $ | (64,247,561 | ) | $ | 7,470,741 | |||||||||||||
| Stock-based compensation | 63,882 | 6 | 341,498 | - | - | - | 341,504 | |||||||||||||||||||||
| Shares issued in connection with capital raises, net of transaction costs | 8,432,192 | 843 | 6,351,234 | - | - | - | 6,352,077 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (4,022,073 | ) | (4,022,073 | ) | |||||||||||||||||||
| Balance, March 31, 2023 | 24,631,474 | 2,463 | 78,709,420 | (100,000 | ) | (300,000 | ) | (68,269,634 | ) | 10,142,249 | ||||||||||||||||||
| Stock-based compensation | - | - | 319,123 | - | - | - | 319,123 | |||||||||||||||||||||
| Warrant granted in connection with a consulting agreement | - | - | 1,310,875 | - | 1,310,875 | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | (2,612,565 | ) | (2,612,565 | ) | |||||||||||||||||||
| Balance, June 30, 2023 | 24,631,474 | 2,463 | 80,339,418 | (100,000 | ) | (300,000 | ) | (70,882,199 | ) | 9,159,682 | ||||||||||||||||||
| Balance | 24,631,474 | 2,463 | 80,339,418 | (100,000 | ) | (300,000 | ) | (70,882,199 | ) | 9,159,682 | ||||||||||||||||||
| Stock-based compensation, net of forfeitures | 100,000 | 10 | 142,884 | - | - | - | 142,894 | |||||||||||||||||||||
| Settlement of stock award | - | - | (52,746 | ) | - | - | - | (52,746 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (2,081,951 | ) | (2,081,951 | ) | |||||||||||||||||||
| Balance, September 30, 2023 | 24,731,474 | $ | 2,473 | $ | 80,429,556 | (100,000 | ) | $ | (300,000 | ) | $ | (72,964,150 | ) | $ | 7,167,879 | |||||||||||||
| Balance | 24,731,474 | $ | 2,473 | $ | 80,429,556 | (100,000 | ) | $ | (300,000 | ) | $ | (72,964,150 | ) | $ | 7,167,879 | |||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
Processa Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| 2023 | 2022 | |||||||
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (8,716,589 | ) | $ | (14,411,909 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 82 | - | ||||||
| Lease expense for right-of-use assets | 60,552 | 66,126 | ||||||
| Milestone expense in connection with license agreement | - | 189,000 | ||||||
| Amortization of issuance costs | - | 78,113 | ||||||
| Amortization of intangible asset | - | 591,372 | ||||||
| Stock-based compensation | 803,521 | 6,052,081 | ||||||
| Warrants issued to purchase 3,160,130 shares of common stock in connection with a consulting agreement | 1,310,875 | - | ||||||
| Net changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other | 836,344 | 299,074 | ||||||
| Operating lease liability | (57,929 | ) | (69,420 | ) | ||||
| Accounts payable | 18,751 | 92,161 | ||||||
| Due (from) to related parties | 5,740 | (1,772 | ) | |||||
| Other receivables | - | 70,274 | ||||||
| Accrued expenses | (200,825 | ) | (62,858 | ) | ||||
| Net cash used in operating activities | (5,939,478 | ) | (7,107,758 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchase of property and equipment | (2,776 | ) | - | |||||
| Net cash used in investing activities | (2,776 | ) | - | |||||
| Cash Flows From Financing Activities | ||||||||
| Net proceeds from common stock issued | 6,352,077 | (35,247 | ) | |||||
| Settlement of stock award | (52,746 | ) | - | |||||
| Acquisition of treasury stock | - | (300,000 | ) | |||||
Net cash provided by (used in) financing activities | 6,299,331 | (335,247 | ) | |||||
| Net Increase (Decrease) in Cash | 357,077 | (7,443,005 | ) | |||||
| Cash and Cash Equivalents – Beginning of Period | 6,503,595 | 16,497,581 | ||||||
| Cash and Cash Equivalents – End of Period | $ | 6,860,672 | $ | 9,054,574 | ||||
| Non-Cash Financing Activities | ||||||||
| Issuance of shares of common stock in connection with the Purchase Agreement with Lincoln Park | $ | - | $ | 450,000 | ||||
| Right-of-use asset obtained in exchange for operating lease liability | $ | - | $ | (238,924 | ) | |||
| Operating lease liability | - | 238,924 | ||||||
| Net | - | $ | - | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
Processa Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Organization and Summary of Significant Accounting Policies
Organization
We are a clinical-stage biopharmaceutical company focused on incorporating our Regulatory Science Approach into the development of our Next Generation Chemotherapy (NGC) drugs to improve the safety and efficacy of cancer treatment. Our NGC drugs are modifications of existing FDA-approved oncology drugs resulting in an alteration of the metabolism and/or distribution while maintaining the well-known and established existing mechanisms of killing the cancer cells. By modifying the NGC drugs in this manner, we believe our three NGC treatments will provide improved safety-efficacy profiles when compared to their currently marketed counterparts.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions of the Securities and Exchange Commission (“SEC”) on Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all the information and disclosures required by U.S. GAAP for complete financial statements. All material intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of our financial position and of the results of operations and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year.
LiquidityGoing Concern and Management’s Plans
We have incurred losses since inception, devoting substantially all of our efforts toward research and development, and have an accumulated deficit of $68.373.0 million at March 31,September 30, 2023. During the threenine months ended March 31,September 30, 2023, we generated a net loss of $4.08.7 million and used $5.9 and wemillion in net cash for operating activities from continuing operations. We expect to continue to generatecontinued operating losses and negative cash flow from operations for the foreseeable future.
During the nine months ended September 30, 2023, we raised gross proceeds of $7.0 million (net proceeds of $6.4 million) from the sale of shares of our common stock, as described in Note 2. We are using the net proceeds from these financings to prepare for future clinical trials, and on research and development expenses, working capital and other general corporate purposes.
| 7 |
Our condensed consolidated financial statements have been prepared using U.S. GAAP and are based on the assumption that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We face certain risks and uncertainties that are present in many emerging pharmaceutical companies regarding product development, limited working capital, recurring losses and negative cash flow from operations, future profitability, ability to obtain future capital, protection of patents, technologies and property rights, competition, rapid technological change, navigating the domestic and major foreign markets’ regulatory and clinical environment, recruiting and retaining key personnel, dependence on third party manufacturing organizations, third party collaboration and licensing agreements, lack of sales and marketing activities. We currently have no customers or pharmaceutical products to sell or distribute. These risks and other factors raise substantial doubt about our ability to continue as a going concern.
At September 30, 2023, we had cash and cash equivalents totaling $6.9 million. Based on our current plans, we believe our current cash balances are adequatewill enable us to complete our current clinical trial in NGC-Capecitabine (NGC-Cap, also known as PCS6422), prepare for at leasta Phase 2 trial for NGC-Cap, and fund our administrative costs through the next twelve months.second quarter of 2024. Our ability to execute our longer-term operating plans, including future clinical trials for our portfolio ofNGC drugs, will depend on our ability to obtain additional funding from the sale of equity and/or debt securities, a strategic transaction or other funding transactions. We plan to continue to actively pursue financing alternatives, including out-licensing and/or entering into partnerships on any of our non-core assets, but there can be no assurance that we will obtain the necessary funding in the future when necessary.
We had no revenue during the threenine months ended March 31,September 30, 2023 and do not have any revenue under contract or any immediate sales prospects. Our primary uses of cash are to fund our planned clinical trials, research and development expenditures and otherfor operating expenses. Cash used to fund operating expenses is impacted by the timing of when we incur and pay these expenses.
We are hoping to raise additional funds in late 2023 or early 2024, but will only do so if the terms are acceptable to us. Additional funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, or suspend our current or planned future clinical trial plans, or research and development programs. This may also cause us to not meet diligence obligations contained in certain of our license agreements and put these assets at risk. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Uncertainty concerning our ability to continue as a going concern may hinder our ability to obtain future financing. Continued operations and our ability to continue as a going concern are dependent on our ability to obtain additional funding in the future and thereafter, and no assurances can be given that such funding will be available at all, in a sufficient amount, or on reasonable terms. Without additional funds from debt or equity financing, sales of assets, sales or out-licenses of intellectual property or technologies, or other transactions providing funds, we will rapidly exhaust our resources, be unable to meet diligence obligations in license agreements, and be unable to continue operations. Absent additional funding, we believe that our cash and cash equivalents will not be sufficient to fund our operations for a period of one year or more after the date that these condensed consolidated financial statements are available to be issued based on the timing and amount of our projected net loss from continuing operations and cash to be used in operating activities during that period of time.
As a result, substantial doubt exists about our ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are available to be issued. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be different should we be unable to continue as a going concern based on the outcome of these uncertainties described above.
During the three months ended March 31, 2023, we raised gross proceeds of $7.0 million (net proceeds of $6.4 million) from the sale of shares of our common stock, as described in Note 2. We plan to use the net proceeds from these financings to prepare for future clinical trials; and on research and development expenses, working capital and other general corporate purposes.
Use of Estimates
In preparing our condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP and pursuant to the rules and regulations of the SEC, we make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to preclinical and clinical trial expenses, stock-based compensation, intangible assets, future milestone payments and income taxes. These estimates and assumptions are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. While we believe the estimates to be reasonable, actual results could differ materially from those estimates and could impact future results of operations and cash flows.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the basis of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. At March 31,September 30, 2023 and December 31, 2022, we recorded a valuation allowance equal to the full recorded amount of our net deferred tax assets since it is more-likely-than-not that such benefits will not be realized. The valuation allowance is reviewed quarterly and is maintained until sufficient positive evidence exists to support its reversal.
Under ACS 740-270 Income Taxes – Interim Reporting, we are required to project our annual federal and state effective income tax rate and apply it to the year-to-date ordinary operating tax basis loss before income taxes. Based on the projection, no current income tax benefit or expense is expected for 2023, andor for the foreseeable future since the deferred tax liability has been offset completely at December 31, 2021 and we expect to generate taxable net operating losses.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of our cash and cash equivalents. We utilize only well-established banks and financial institutions with high credit ratings. Balances on deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Total cash held by our banks at March 31,September 30, 2023, exceeded FDIC limits.
Recent Accounting Pronouncements
From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our condensed consolidated financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our condensed consolidated financial position or results of operations.
Note 2 – Stockholders’ Equity
Preferred Stock
There were issued or outstanding shares of preferred stock at either March 31,September 30, 2023 or December 31, 2022.
Common Stock
Increase in Our Authorized Number of Shares
Subsequent to receiving shareholder approval on June 27, 2023, we amended our Certificate of Incorporation to increase the number of authorized shares of our common stock from to . We believe authorized shares of common stock better aligns our capital structure with our future needs and have shown this retroactively in the condensed consolidated financial statements.
During the threenine months ended March 31,September 30, 2023, we issued shares of our common stock through several fundraising efforts.efforts described below:
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ATM Offering
On August 20, 2021, we entered into the Sales Agreement with Oppenheimer & Co. Inc. (the “Sales Agent”) under which we may issue and sell up to $30.0 million from time to time under the ATM Offering. We expect to use net proceeds from the ATM Offering over time as a source for working capital and general corporate purposes. During the three months ended March 31, 2023, we sold shares at an average price of $ per share for aggregate gross proceeds of $693,000 (net proceeds of $672,000) prior to deducting sales commissions. On February 5, 2023, in connection with our Registered Direct Offering discussed below, we terminated our ATM and suspended the Sales Agreement with the Sales Agent,Oppenheimer & Co. Inc., but we expect to reinstate it during 2023.in the future. During the nine months ended September 30, 2023, we sold shares at an average price of $per share for aggregate gross proceeds of $693,000 (net proceeds of $672,000) prior to deducting sales commissions.
Lincoln Park Capital Fund, LLC Purchase Agreement
On March 23, 2022, we entered into the Purchase Agreement a purchase agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $15.0 million of shares (the “Purchase Shares”) of our common stock, subject to the terms and conditions in the Purchase Agreementpurchase agreement with Lincoln Park,, including that the closing sale price of the common stock on the purchase date is not below a threshold price of $1.00. Any proceeds that we receive under the Purchase Agreementpurchase agreement are expected to be used for working capital and general corporate purposes. During the threenine months ended March 31,September 30, 2023, we sold shares at an average price of $ per share for aggregate gross proceeds of $54,000 under the Purchase Agreementpurchase agreement with Lincoln Park.
Registered Direct Offering
On February 14, 2023, we closed a registered direct offering (the(the “Offering”) for the sale of shares of common stock at a purchase price of $per share for gross proceeds of $6.3million (net proceeds of $5.6 million). The Purchase Agreement provides that, subject to certain exceptions, until the earlier of (i) 90 days after the closing of the Offering or (ii) the trading day following the date that our common stock’s closing price exceeds $2.00 for a period of 10 consecutive trading days, neither we nor our subsidiary will issue or enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or common stock equivalentsmillion).
We paid the Placement Agent (“Spartan Capital” or “Spartan”) a cash fee of 8.0% of the gross proceeds from the Offering, excluding proceeds received from our insiders, and reimbursed the Placement Agent for legal fees of $60,000. The engagement agreement with the Placement Agent requires us to indemnify the Placement Agent and certain of its affiliates against certain customary liabilities. On February 14, 2023, we amended our consulting agreement with Spartan originally entered into on August 24, 2022, extending the term of the consulting agreement until February 10, 2024. As compensation for services under the agreement, on April 17, 2023, we granted Spartan a warrantwarrants to purchase 3,160,130shares of our common stock with an exercise price of $1.02. The warrantwarrants will expire three yearsfrom the date of issuance and contains both call and cashless exercise provisions.
On June 19, 2019, our stockholders approved, and we adopted the Processa Pharmaceuticals Inc. 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). The 2019 Plan allows us, under the direction of our Board of Directors or a committee thereof, to make grants of stock options, restricted and unrestricted stock and other stock-based awards to employees, including our executive officers, consultants and directors. The 2019 Plan provides for the aggregate issuance of shares of our common stock. At March 31,September 30, 2023, we havehad shares available for future grants.grants under the 2019 Plan.
Stock Compensation Expense
Schedule of Stock-based Compensation Expense
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Research and development | $ | 99,621 | $ | 191,875 | $ | 76,626 | $ | 1,067,613 | $ | 286,152 | $ | 1,945,113 | ||||||||||||
| General and administrative | 241,883 | 637,022 | 66,268 | 2,146,202 | 517,369 | 4,106,968 | ||||||||||||||||||
| Total | $ | 341,504 | $ | 828,897 | $ | 142,894 | $ | 3,213,815 | $ | 803,521 | $ | 6,052,081 | ||||||||||||
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At March 31,
During the nine months ended September 30, 2023, we also recorded an expense and related accrued liability of $1.3 million related to the warrantwarrants we issued to Spartan (see Note 2), which is not included in the table above.above. No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for all net deferred tax assets relating to this expense.
Stock Options
During the threenine months ended March 31,September 30, 2023, stock options to purchase shares of common stock expired and there were no exercises or grants of stock options. At March 31,September 30, 2023, we had outstanding and exercisable options for the purchase of shares with a weighted average exercise price of $, a weighted average remaining contractual life of 2.9 years. At March 31,September 30, 2023, we did not have any unrecognized stock-based compensation expense related to our granted stock options.
Restricted Stock Awards
Schedule of Restricted Stock Awards (“RSAs”) Activity
Number of shares | Weighted- average grant-date fair value per share | Number of shares | Weighted- average grant-date fair value per share | |||||||||||||
| Outstanding at January 1, 2023 | 61,888 | $ | 4.72 | 61,888 | $ | 4.72 | ||||||||||
| Granted | 90,000 | 1.10 | 215,000 | 0.73 | ||||||||||||
| Forfeited | (25,000 | ) | 6.65 | |||||||||||||
| Cancelled | (26,118 | ) | 1.72 | (26,118 | ) | 1.72 | ||||||||||
| Issued | (150,770 | ) | 1.35 | |||||||||||||
| Outstanding and unvested at March 31, 2023 | 125,770 | $ | 2.75 | |||||||||||||
| Outstanding and unvested at September 30, 2023 | 75,000 | $ | 0.46 | |||||||||||||
On January 1, 2023, we granted RSAs totaling shares of common stock to three directors for their service for the six monthsix-month period ending June 30, 2023 in order to align their compensation plan with their service period and changechanged the annual service period to begin and end on the date of respective Annual Meetings rather than the calendar year. Our directors are compensated through a combination of cash and equity. On March 8, 2023, the directors increased the cash component and decreased the equity component of their compensation by equal amounts on a retroactive basis, to the beginning of their respective service periods. Accordingly, we cancelled RSAs representing shares of previously issued, but unvested common stock.
AtOn July 14, 2023, we granted RSAs totaling shares of common stock to a consultant (of which have been issued as of September 30, 2023) for services to be provided through March 18, 2024. The remaining RSAs are subject to vesting restrictions. On August 31, 2023, in connection with the totalresignation of our Chief Operating Officer (COO), unvested RSAs representing shares of common stock were forfeited and we reversed previously recognized expense of $73,000.
At September 30, 2023, unrecognized stock-based compensation expense related to the outstanding and unvestedof $for RSAs was $representing , whichshares of common stock is expected to be recognized over a weighted average period of years. The weighted-average grant-date fair value of RSAs granted during the nine months ended September 30, 2022 was $.
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Restricted Stock Units
Schedule of Restricted Stock Units (“RSUs”) Activity
Number of shares | Weighted- average grant-date fair value per share | Number of shares | Weighted- average grant-date fair value per share | |||||||||||||
| Outstanding at January 1, 2023 | 2,713,977 | $ | 3.69 | 2,713,977 | $ | 3.69 | ||||||||||
| Granted | 966,503 | 1.10 | 2,273,328 | 0.72 | ||||||||||||
| Outstanding at March 31, 2023 | 3,680,480 | 3.01 | ||||||||||||||
| Forfeited | (144,478 | ) | 1.48 | |||||||||||||
| Cancelled | (335,960 | ) | 3.57 | |||||||||||||
| Outstanding at September 30, 2023 | 4,506,867 | 2.30 | ||||||||||||||
| Vested and unissued | 2,585,247 | 3.50 | 2,291,923 | 3.58 | ||||||||||||
| Unvested at March 31, 2023 | 1,095,233 | $ | 1.86 | |||||||||||||
| Unvested at September 30, 2023 | 2,214,944 | $ | 0.97 | |||||||||||||
On August 8, 2023, Mr. George Ng was appointed as our Chief Executive Officer and as a Board Director. In addition to cash compensation, the Compensation Committee awarded restricted stock units (“RSUs”) to Mr. Ng. Vesting for RSUs occurs ratably over a three-year period. The remaining RSUs will vest on the achievement of certain performance metrics, with the first performance-based RSUs vesting when gross proceeds of $10,000,000 is raised, and the second performance-based RSUs vesting when additional gross proceeds of $10,000,000 is raised. On August 31, 2023, in connection with the termination of our COO, vested and unvested RSUs representing shares of common stock were forfeited and/or cancelled and we reversed previously recognized expense of $38,000.
At March 31,September 30, 2023, unrecognized stock-based compensation expense of $ million for RSUs is expected to be fully recognized over a weighted average period of years. The unrecognized expense excludes $ of expense related to certain RSUs with a performance milestone that is not probable of occurring at this time. The weighted-average grant-date fair value of RSUs granted during the nine months ended September 30, 2022 was $.
Holders of our vested RSUs have our promise to issue shares of our common stock upon meeting the distribution restrictions contained in their Restricted Stock Unit Award Agreement. The distribution restrictions are different (longer) than the vesting schedule, imposing an additional restriction on the holder. Unlike RSAs, while certain employees may hold fully vested RSUs, the individual does not hold any shares or have any rights of a shareholder until the distribution restrictions are met. Upon distribution to the employee, each RSU converts into one share of our common stock. The RSUs contain dividend equivalent rights.
Warrants
During the threenine months ended March 31,September 30, 2023, we agreed to grant a warrantgranted warrants to purchase a total of shares of our common stock as compensation for services provided under an amended consulting agreement with Spartan, the placement agent for the Offering described in Note 2. The warrant waswarrants were issued and exercisable on April 17, 2023 with an exercise price of $1.02 and expiration date of April 17, 2026. The warrant containswarrants contain both call and cashless exercise provisions. We recorded $1,310,875 as a general and administrative expense and related accrued liability representing the fair value of this warrantthese warrants on February 14, 2023, the date we amended the consulting agreement since there were no contingent conditions on that date through April 17, 2023.
2023, the date of issuance. At March 31,September 30, 2023, we had outstanding and exercisable stock purchase warrants including the warrant issued on April 17, 2023, for the purchase of 3,366,480 shares with a weighted average exercise price of $1.61 and a weighted average remaining contractual life of years. Stock purchase warrants for the purchase of shares were exercisable at March 31, 2023 and the remaining outstanding stock purchase warrants will be exercisable in the second quarter of 2023.
At March 31,September 30, 2023, we did not have any unrecognized stock-based compensation expense related to our granted stock purchase warrants.
Net Loss Per Share
Basic net loss per share is computed by dividing our net loss available to common shareholders by the weighted average number of shares of common stock outstanding (which excludes unvested RSAs and includes vested RSUs) during the period. Diluted loss per share is computed by dividing our net loss available to common shareholders by the diluted weighted average number of shares of common stock (which includes the potentially dilutive effect of stock options, unvested RSAs, unvested RSUs and warrants) during the period. Since we experienced a net loss for bothall periods presented, basic and diluted net loss per share are the same. As such, diluted loss per share for the three monthsthree- and nine-month periods ended March 31,September 30, 2023 and 2022 excludes the impact of potentially dilutive common shares since those shares would have an anti-dilutive effect on net loss per share.
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Schedule of Net Loss Per Share Basic and DiluteDiluted
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Three months ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Basic and diluted net loss per share: | ||||||||||||||||||||||||
| Net loss available to common stockholders | $ | (4,022,073 | ) | $ | (3,227,131 | ) | $ | (2,081,951 | ) | $ | (6,020,410 | ) | $ | (8,716,589 | ) | $ | (14,411,909 | ) | ||||||
| Weighted average number of common shares-basic and diluted | 22,770,789 | 15,831,118 | ||||||||||||||||||||||
| Basic and diluted net loss per share | $ | (0.18 | ) | $ | (0.20 | ) | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||||
Our diluted net loss per share for the three monthsthree- and nine-month periods ended March 31,September 30, 2023 and 2022 excluded (including the committed warrant to purchase 3,160,130 shares of common stock) and of potentially dilutive common shares, respectively, related to outstanding stock options, stock purchase warrants and unvested restricted stock since those shares would have had an anti-dilutive effect on net loss per share during the periods then ended.
Note 5 – Operating Leases
We lease our office space under an operating lease agreement. This lease does not have significant rent escalation, concessions, leasehold improvement incentives, or other build-out clauses. Further, the lease does not contain contingent rent provisions. Our office space lease includes both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs), which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases. We also lease office equipment under an operating lease. Our leases do not provide an implicit rate and, as such, we have used our incremental borrowing rate of 8% in determiningto determine the present value of the lease payments based on the information available at the lease commencement date.
Lease costs included in our condensed consolidated statements of operations totaled $22,46124,000 and $21,918 for the three monthsboth three-month periods ended March 31,September 30, 2023 and 2022 respectively.and approximately $73,000 for both nine-month periods ended September 30, 2023 and 2022. The weighted average remaining lease terms and discount rate for our operating leases were as follows at March 31,September 30, 2023:
Schedule of Weighted Average Remaining Lease Terms and Discount Rate for Operating Leases
| Remaining lease term (years) for our facility lease | 2.0 | |||||
| Remaining lease term (years) for our equipment lease | 0.5 | |||||
| Weighted average remaining lease term (years) for our facility and equipment leases | 2.0 | |||||
| Weighted average discount rate for our facility and equipment leases | 8.0 | % |
Annual lease liabilities for all operating leases were as follows at March 31,September 30, 2023:
Schedule of Annual Lease Liabilities for all Operating Leases
| 2023 | $ | 70,600 | ||
| 2024 | 92,356 | |||
| 2025 | 70,040 | |||
| Total lease payments | 232,996 | |||
| Less: Interest | (22,472 | ) | ||
| Present value of lease liabilities | 210,524 | |||
| Less: current maturities | (81,166 | ) | ||
| Non-current lease liability | $ | 129,358 |
| 2023 | $ | 24,109 | ||
| 2024 | 92,356 | |||
| 2025 | 70,040 | |||
| Total lease payments | 186,505 | |||
| Less: Interest | (14,984 | ) | ||
| Present value of lease liabilities | 171,521 | |||
| Less: current maturities | (82,744 | ) | ||
| Non-current lease liability | $ | 88,777 |
Note 6 – Related Party Transactions
CorLyst, LLC (“CorLyst”) reimburses us for shared costs related to payroll, health insurance and rent based on actual costs incurred, which are recognized as a reduction of our general and administrative operating expenses being reimbursed in our condensed consolidated statementstatements of operations. We recorded $30,20589,980 and $31,26294,642 ofin reimbursements during the threenine months ended March 31,September 30, 2023 and March 31, 2022, respectively. amounts were due from CorLyst at March 31,September 30, 2023 or 2022. Our CEOPresident, Research and Development is also the CEO of CorLyst, and CorLyst is a shareholder.
Note 7 – Commitments and Contingencies
Purchase Obligations
We enter into contracts in the normal course of business with contract research organizations (CROs) and subcontractors to further develop our products. The contracts are cancelable,cancellable, with varying provisions regarding termination. If we terminated a cancelablecancellable contract with a specific vendor, we would only be obligated for products or services that we received atas of the effective date of the termination and any applicable cancellation fees. At March 31,As of September 30, 2023, we are contractually obligated to pay up to approximately $3.01.8 million of future services under the agreements with the CROs. OurCROs, but our actual contractual obligations will also vary depending on the progress and results of the remaining clinical trials.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Forward Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” that reflect, when made, the Company’s expectations or beliefs concerning future events that involve risks and uncertainties. Forward-looking statements frequently are identified by the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “will be,” “will continue,” “will likely result,” or other similar words and phrases. Similarly, statements herein that describe the Company’s objectives, plans or goals also are forward-looking statements. Actual results could differ materially from those projected, implied or anticipated by the Company’s forward-looking statements. Some of the factors that could cause actual results to differ include: our limited operating history, limited cash and history of losses; our ability to achieve profitability; our ability to obtain adequate financing to fund our business operations in the future; the impact of the global pandemic caused by COVID-19, including its impact on our ability to obtain financing or complete clinical trials; our ability to secure required FDA or other governmental approvals for our product candidates and the breadth of the indication sought; the impact of competitive or alternative products, technologies and pricing; whether we are successful in developing and commercializing our technology, including through licensing; the adequacy of protections afforded to us and/or our licensorslicensor by the anticipated patents that we own or license and the cost to us of maintaining, enforcing and defending those patents; our and our licensors’licensor’s ability to protect non-patented intellectual property rights; our exposure to and ability to defend third-party claims and challenges to our and our licensors’licensor’s anticipated patents and other intellectual property rights; and our ability to continue as a going concern. For a discussion of these and all other known risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which is available on the SEC’s website at www.sec.gov.www.sec.gov. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update this Quarterly Report on Form 10-Q to reflect events or circumstances after the date hereof.
For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, references to the “Company,” “we,” “us” or “our” refer to the operations of Processa Pharmaceuticals, Inc. and its direct and indirect subsidiaries for the periods described herein.
Overview
We are a clinical-stage biopharmaceutical company focused on utilizing our Regulatory Science Approach, including the principles associated with FDA’s Project Optimus Oncology initiative and the related FDA Draft Guidance, in the development of Next Generation Chemotherapy (NGC) oncology drug products. Our mission is to provide better treatment options than those that presently exist by extending a patient’s survival and/or improving a patient’s quality of life. This is achieved by improving upon FDA-approved, widely used oncology drugs or the cancer-killing metabolites of these drugs by altering how they are metabolized and/or distributed in the body, including how they are distributed to the actual cancer cells.
Regulatory science was conceived in the early 1990s when the founders of Processa and other faculty at the University of Maryland worked with the FDA to develop multiple FDA Guidance documents.Guidances. Regulatory science is the science of developing new tools, standards, and approaches to assess the safety, efficacy, quality, and performance of all FDA-regulated products. Over the last 30 years, two of our founders, Dr. David Young and Dr. Sian Bigora, have expanded the original regulatory science concept by including the pre-clinical and clinical studies to include other factors, such asjustify the benefit-risk assessment required for FDA approval when designing the development programs of new drug products.
The Processa Regulatory Science Approach defines the scientific information that the FDA requires to determine if the benefit outweighs the risk of a drug in a specific population of patients and at a specific dosage regimen for a specific drug product. The studies are designed to obtain the necessary scientific information to support the regulatory decision.
The FDA has more recently taken steps to define some of the regulatory science required for the FDA approval of oncology products. Through the FDA’s Project Optimus Oncology Initiative and the related Draft Guidance on determining the “optimal” dosage regimen for an oncology drug, the FDA has chosen to make the development of oncology drugs more science-based than in the past. Since the principles of Project Optimus, which can affect the risk-benefit analyses that FDA conducts for every FDA drug approval. In fact, the principles of FDA’s Project Optimus and the related Draft Guidance have been used by Drs. Young and Bigora to identify and justify an “optimal” dosage regimen forour Regulatory Science Approach in a number of non-oncology FDA-approved drugs. Our Regulatory Science Approach anddrugs, our past experience with the principles of Project Optimus differentiates us from other biotechnology companies by focusing us not only on the clinical science, but also on the equally important regulatory process. We believe utilizing our Regulatory Science Approach provides us with three distinct advantages:
| ● | greater efficiencies (e.g., the right trial design and trial readouts); | |
| ● | greater possibility of drug approval by the FDA or other regulatory authorities; and | |
| ● |
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In January 2023, we announced our strategic prioritization to advance our pipeline of Next Generation ChemotherapyNGC proprietary small molecule oncology drugs. ByThe NGC products are new chemical entities, but they work by changing either the metabolism, distribution and/or elimination of already FDA-approved cancer drugs or their active metabolites while maintaining the mechanism of how the drug kills cancer cells, wecells. We believe our NGC treatments will provide improved safety-efficacy profiles when compared to their currently marketed counterparts -– capecitabine, gemcitabine, and irinotecan. All future studies of these drugs are subject to availability of capital to conduct the trials.
The three NGC treatments in our pipeline are as follows:
| ● | NGC-Capecitabine (NGC-Cap) is a combination of PCS6422 and |
| ● | PCS3117, also referred to as NGC-Gemcitabine | |
| ● | PCS11T, also referred to as NGC-Irinotecan |
DueWe have completed our Phase 2A trial for PCS12852 in gastroparesis patients with positive results. Additionally, due primarily to the inability to identify and enroll patients since the beginning ofin our rare disease Phase 2 trial for PCS499 in ulcerative Necrobiosis Lipoidica (uNL), we decided to cease further enrollment in the PCS499 trial in February 2023. In addition, we have completed our Phase 2A trial for PCS12852 in gastroparesis patients with positive results.2023 and terminated the trial. We did not experience any safety concerns during the conduct of either the PCS12852 or PCS499 trial. We are currently evaluating options to monetize PCS12852 and PCS499.these non-core drug assets, which may include out-licensing or partnering these assets with one or more third parties.
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Our shift in prioritization to NGC oncology drugs does not change our mission. We continue to be focused on drug products that improve the survival and/or quality of life for patients by improving the safety and/or efficacy of the drug in a targeted patient population, while providing a more efficient and probable path to FDA approval and differentiating our drugs from those on the market or are currently being developed.
Historically, much of oncology drug development has searched for novel or different ways to treat cancer. Our de-risked approach is to take three current FDA-approved cancer drugs and modify and improve three different and well-known, currently approved, and successfully used chemotherapy treatments so thathow the human body metabolizes and/or distributes these NGC treatments differently thancompared to their presently approved counterpart drugs while maintaining the cancer-killing mechanism of action. FDA’s newly issued Project Optimus Oncology initiative and draft guidance onaction; thus, our reason for calling our drugs Next Generation Chemotherapy (or NGC) treatments. Part of the development includes determining the optimal dose for oncology drugs recommends that the dose-response (both safety and efficacy) relationships be evaluated for all oncology drugs. Our Regulatory Science Approach, developed over the last 30 years, is very well aligned with the principles of Project Optimus and draft guidance where the objective is to identify the optimal dosage regimen rather thanbased on the old approach of identifyingdose-response relationship as described in the maximum tolerated dose (MTD)FDA’s Project Optimus Initiative and adjust dosing accordingly.Draft Optimal Dosage Regimen Oncology Guidance. To date, we have data that suggests our NGC treatments are likely to have a better safety-efficacy profile than the current widely used marketed counterpart drugs, not only potentially making the development and approval process more efficient, but also clearly differentiating our NGC treatments from the existing treatment. We believe our NGC treatments have the potential to extend the survival and/or quality of life for more patients diagnosed with cancer while decreasing the number of patients who are required to dose-adjust or discontinue treatment because of side effects or lack of response.
Our Strategy
Our strategy is to develop our pipeline of Next Generation Chemotherapy (NGC) proprietary small molecule oncology drugs using our Regulatory Science approach, encompassing the principles of the FDA’s recent Project Optimus initiative and draft guidance on determiningApproach to determine the optimal dosage regimen of our oncology drugs.
By changing either the metabolism, distribution, and/or elimination of already FDA-approved cancer drugs (e.g., capecitabine, gemcitabine, and irinotecan) or their active metabolites, we believe that our three new oncology drugs represent the next generation of chemotherapy with an improved safety profile, improved efficacy profile and/or potentially benefiting more patients while maintaining the mechanism of how the drug kills cancer cells, we believe our three NGC treatments will provide improved safety-efficacy profiles when compared to their currently marketed counterparts - capecitabine, gemcitabine, and irinotecan.cells. By combining these modified approved cancer treatments with our Regulatory Science Approach and our experience using the principles of FDA’s Project Optimus initiative, we anticipate that we will be able to increase the probability of FDA approval, improve the safety-efficacy profile over theirthe existing counterparts of our NGC drugs, which is important to patients and prescribers, and to more efficiently develop each drug.
Our pipeline of NGCs (i) already has data demonstrating the desired pharmacological activity in humans or appropriate animal models and is able to provide improved safety and/or efficacy by some modification in the formation and/or distribution of the active moieties associated with the drug and (ii) targets cancers for which a single positive pivotal trial demonstrating efficacy might provide enough evidence that the clinical benefits of the drug and its approval outweighs the risks associated with the drug.
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Our Drug Pipeline
Our pipeline currently consists of NGC-Capecitabine, NGC-GemcitabineNGC-Cap, NGC-Gem and NGC-IrinotecanNGC-Iri (also identified as PCS6422, PCS3117 and PCS11T, respectively) and two non-oncology drugs (PCS12852 and PCS499). A timeline and summary of each drug is provided below.
Key:
Next Generation Chemotherapy Pipeline
| ● | Next Generation Capecitabine
|
| On August 2, 2021, we enrolled the first patient in our Phase 1B dose-escalation maximum tolerated dose trial in patients with advanced refractory gastrointestinal (GI) tract tumors. Our interim analysis of Cohorts 1 and 2A of the ongoing clinical trial found no dose-limiting toxicities (DLTs), no drug-related adverse events greater than Grade 1, and no adverse events associated with the catabolites of 5-FU such as HFS. In this Phase 1B trial, it was demonstrated that the irreversible inhibition of DPD by PCS6422 could alter the metabolism, distribution and elimination of 5-FU, making | ||
| In order for |
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In an effort to better estimate the timeline of DPD inhibition and formation of new DPD, we modified the protocol for the Phase 1B trial and began enrolling patients in the amended Phase 1B trial in April 2022. On November 1, 2022, we announced that data from the Phase 1B trial identified multiple dosage regimens with potentially better safety and efficacy profiles than currently existing chemotherapy regimens. Since 5-FU exposure is dependent on both the PCS6422 regimen and the capecitabine regimen, safe regimens were identified as well as regimens that cause DLTs. One of the regimens in the Phase 1B trial did cause DLTs in two patients, one of whom died. The Phase 1B trial is continuing to enroll patients and is expected to complete enrollment Discussions with the FDA in April 2023 have clarified that the major goal for the next Phase 2 trial will be to evaluate and understand the dose- and exposure-response relationship for anti-tumor activity Our license agreement with Elion Oncology, Inc. (“Elion”) for NGC-Cap requires us to use commercially reasonable efforts, at our sole cost and expense, to research, develop and commercialize products in one or more countries, including meeting specific diligence milestones that include dosing a first patient with a product in a Phase 2 or 3 clinical trial on or before October 2, 2024. We are currently conducting pre-trial activities and planning to dose the first patient in our Phase 2 trial in the summer of 2024. |
| ● |
PCS3117 is a cytidine analog similar to gemcitabine (Gemzar®), but different enough in chemical structure that some patients are more likely to respond to PCS3117 than gemcitabine. The difference in response occurs because Our license agreement with Ocuphire Pharma, Inc. (“Ocuphire”) for NGC-Gem requires us to use commercially reasonable efforts, at our sole cost and expense to oversee such commercialization efforts, to research, develop and commercialize products in one or more countries, including meeting specific diligence milestones that consist of: (i) dosing a patient in a clinical trial prior to June 16, 2024; and (ii) dosing a patient in a pivotal clinical trial or in a clinical trial for a second indication of the drug prior to June 16, 2026. We are currently negotiating with Ocuphire to extend these deadlines. | |
| ● |
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Non-Oncology Pipeline for Out-licensing or Partnership
| ● | PCS12852 is a highly specific and potent 5HT4 agonist that has already been evaluated in clinical studies in South Korea for gastric emptying and gastrointestinal motility in healthy volunteers and volunteers with a history of constipation. In October 2021, the FDA cleared our IND application to proceed with a Phase 2A trial for the treatment of gastroparesis. We enrolled our first patient on April 5, 2022 and completed enrollment of the trial on September 2, 2022. Results from this Phase 2A trial, which included 25 patients with moderate to severe gastroparesis, demonstrated improvements in gastric emptying in patients receiving 0.5 mg of PCS12852 as compared to placebo. The results indicated that for the patients in the PCS12852 group, the mean time for 50% of the gastric contents to empty (t50) compared to their baseline value (±SD) decreased by -31.90 min (±50.53) (compared to the change seen in the placebo group of only -9.36 min (±42.43). Significant gastric emptying differences were not observed between the placebo and the 0.1 mg dose. Adverse events associated with the administration of PCS12852 were generally mild to moderate as expected, limited in duration, and quickly resolved without any sequelae. There were no cardiovascular safety events or serious adverse events reported during the trial. Additionally, the 0.5 mg of PCS12852 showed a greater improvement than placebo in the gastroparesis symptomology scales (including both total scores in the scales, as well as sub-scores such as nausea, vomiting and abdominal pain) used in the trial. With the trial now complete, we have the data necessary to finalize the development plan for the treatment of diabetic gastroparesis patients. We |
| ● | PCS499 is an oral tablet of the deuterated analog of one of the major metabolites of pentoxifylline (PTX or Trental®). PCS499 is a drug that can be used to treat unmet medical need conditions caused by multiple pathophysiological changes. We completed a Phase 2A trial for PCS499 in patients with ulcerative and non-ulcerative necrobiosis lipoidica (uNL and NL, respectively) in late 2020, and in May 2021, we enrolled the first patient in our Phase 2B trial for the treatment of uNL. Although we initiated several recruitment programs to increase the enrollment of patients in this trial, we were only able to recruit four patients. We |
Recent Developments
DuringThrough the three months ended March 31, 2023,date of this Form 10-Q, we raised gross proceeds of $7.0 million (net proceeds of $6.4 million) from the sale of 8,432,192 shares of our common stock throughhad the following transactions:significant developments:
| ● | On August 8, 2023, Mr. George Ng was appointed as our Chief Executive Officer and as a Board Director. Mr. Ng is a seasoned life sciences industry executive with significant experience successfully leading small-cap public companies including through product development and fundraising activities. In connection with his employment, Mr. Ng will be paid an annual base salary of $400,000 and will be eligible to receive bonus compensation of up to $100,000 contingent on Mr. Ng. meeting certain performance milestones during 2023 and 2024. In addition, the Compensation Committee awarded 800,000 restricted stock units (“RSUs”) to Mr. Ng. Vesting for 400,000 RSUs occurs ratably over a three-year period. The remaining 400,000 RSUs will vest on the achievement of certain performance metrics, with the first 200,000 performance-based RSUs vesting when gross proceeds of $10,000,000 is raised, and the second 200,000 performance-based RSUs vesting when additional gross proceeds of $10,000,000 is raised. He will also be eligible for other benefits as described in the Employment Agreement. Given his oncology and drug development expertise, Dr. David Young transitioned to be our President, Research and Development, concentrating his fulltime effort to drug development of our NGC drugs. By mutual agreement, Mr. R. Michael Floyd resigned as Chief Operating Officer of the Company, effective August 31, 2023. |
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| ● | We raised gross proceeds of $7.0 million (net proceeds of $6.4 million) from the sale of 8,432,192 shares of our common stock through the following transactions to strengthen our balance sheet and allow us to prepare for our next trial for NGC-Cap: |
| ● | In January 2023, we sold 50,000 shares at an average price of $1.08 per share for an aggregate gross proceeds of $54,000 through the Purchase Agreement we entered into with Lincoln Park Capital in March 2022, under which we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $15.0 million of our shares of common stock, subject to the terms and conditions in the Purchase Agreement. | |
| ● | On February 3, 2023, we sold 569,648 shares at an average price of $1.22 per share for an aggregate gross proceeds of $693,000 (net proceeds of $672,000) prior to deducting sales commissions, pursuant to our Sales Agreement with Oppenheimer & Co. Inc., under which we may issue and sell in a registered “at-the-market” offering shares of our common stock having an aggregate offering price of up to $30.0 million from time to time. |
| ● | On February 14, 2023, we closed a registered direct offering for the sale of 7,812,544 shares of our common stock at a purchase price of $0.80 per share to accredited investors for gross proceeds of $6.3 million. Net proceeds from the offering were $5.6 million. |
Termination of PCS499 Trial
| ● | Due to enrollment difficulties that we experienced in our rare disease Phase 2 trial for PCS499 in uNL, we decided to cease further enrollment in the PCS499 trial in February 2023 and terminated the trial. There were no safety concerns noted during the trial. |
Due to enrollment difficulties that we have experienced since the beginning of our rare disease trial for PCS499 in uNL, we decided to cease further enrollment in the PCS499 trial in February 2023. There were no safety concerns noted during the trial.
Results of Operations
Comparison of the three and nine months ended March 31,September 30, 2023 and 2022
The following table summarizes our net lossoperations during the periods indicated:
| Three months ended | ||||||||||||
| March 31, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| Operating Expenses | ||||||||||||
| Research and development expenses | $ | 1,627,480 | $ | 2,043,984 | $ | (416,504 | ) | |||||
| General and administrative expenses | 2,478,055 | 1,184,730 | 1,293,325 | |||||||||
| Operating Loss | (4,105,535 | ) | (3,228,714 | ) | ||||||||
| Other Income (Expense), net | 83,462 | 1,583 | 81,879 | |||||||||
| Net Operating Loss Before Income Tax Benefit | (4,022,073 | ) | (3,227,131 | ) | (794,942 | ) | ||||||
| Income Tax Benefit | - | - | - | |||||||||
| Net Loss | $ | (4,022,073 | ) | $ | (3,227,131 | ) | ||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||
| Research and development | $ | 1,151,740 | $ | 3,136,838 | $ | (1,985,098 | ) | $ | 4,478,793 | $ | 8,319,907 | $ | (3,841,114 | ) | ||||||||||
| General and administrative | 1,015,872 | 2,920,280 | (1,904,408 | ) | 4,508,818 | 6,137,674 | (1,628,856 | ) | ||||||||||||||||
| Operating Loss | (2,167,612 | ) | (6,057,118 | ) | (8,987,611 | ) | (14,457,581 | ) | ||||||||||||||||
| Other Income (Expense) | ||||||||||||||||||||||||
| Interest income, net | 85,661 | 36,708 | 48,953 | 271,022 | 45,672 | 225,350 | ||||||||||||||||||
| Net Loss | $ | (2,081,951 | ) | $ | (6,020,410 | ) | $ | (8,716,589 | ) | $ | (14,411,909 | ) | ||||||||||||
Revenues.
We do not currently have any revenue under contract or any immediate sales prospects.
Research and Development Expensesdevelopment expenses
Our research and development costs are expensed as incurred. Research and development expenses includeinclude: (i) internal research and development staff related salaries and other payroll costs including stock-based compensation, payroll taxes and employee benefits and (ii) program and testing related expenses, including external consulting and professional fees related to the product testing and our development activitiesactivities. In 2022, we also had expenses related to the amortization of the exclusive PCS499 license intangible asset. Non-refundable advance payments for goods and (ii) internalservices to be used in future research and development staff salariesactivities are recorded as prepaid expenses and other payroll costs including stock-based compensation, payroll taxesexpensed when the research and employee benefits.development activities are performed.
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During the three months ended March 31, 2023, our
Our research and development expenses decreased by $416,504during both the three- and nine-month periods ended September 30, 2023 when compared to $1,627,480 from $2,043,984 for the three months ended March 31, 2022. Costs for the three months ended March 31, 2023 andsame periods in 2022 were as follows:shown below.
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Amortization of intangible assets | $ | - | $ | 197,124 | ||||
| Research and development salaries and benefits | 518,803 | 526,616 | ||||||
| Preclinical, clinical trial and other costs | 1,108,677 | 1,320,244 | ||||||
| Total | $ | 1,627,480 | $ | 2,043,984 | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Amortization of intangible assets | $ | - | $ | 197,124 | $ | - | $ | 591,372 | ||||||||
| Research and development salaries and benefits | 448,071 | 1,502,065 | 1,480,909 | 3,068,241 | ||||||||||||
| Preclinical, clinical trial and other costs | 703,669 | 1,437,649 | 2,997,884 | 4,660,294 | ||||||||||||
| Total | $ | 1,151,740 | $ | 3,136,838 | $ | 4,478,793 | $ | 8,319,907 | ||||||||
The decrease in research and development expenses, excluding amortization, was primarily due to a decrease in preclinical, clinical trial and other costs during the three and nine months ended March 31,September 30, 2023 when compared to the same period in 2022. This decrease2022 was attributable to the completion of our clinical trial for PCS12852 and the early termination of our clinical trial for PCS499. We also did not have any amortization expense in 2023, as we fully impaired our intangible asset at December 31, 2022. During the same periodthree- and nine-month periods in 2022, we had three active clinical trials and amortization expense for our intangible asset.
During the three and nine months ended September 30, 2023, when compared to the same period in 2022, we also experienced decreases in stock-based compensation of $991,000 and $1.7 million, respectively, as a result of a reduction in stock awards granted. During the three months ended September 30, 2023, we experienced a decrease in payroll and related costs of $63,000 while during the nine months ended September 30, 2023, we experienced an increase in payroll and related costs of $72,000. While we have promoted and/or increased salary rates for some personnel, we have fewer full-time R&D employees in 2023 than 2022.
Until we begin our next clinical trial, we anticipate our research and development costs to remain consistent as we continue incurring costs in our clinical trial for NGC-Cap (PCS6422) and we close out and receive final reports related to our clinical trials for PCS499 and PCS12852. We will, however, continueare also incurring costs in preparation for our clinicalplanned Phase 2 trial for NGC-Capecitabine,NGC-Cap, including the cost of having drug product manufactured and other pre-trial tasks, necessary for the Phase 2 clinical trial, as well as costs necessary to submitwe may incur in connection with the submission of any Phase 2B protocol for NGC-Gemcitabine.NGC-Gem.
The funding necessary to bring a drug candidate to market is subject to numerous uncertainties. Once a drug candidate is identified, the further development of that drug candidate may be halted or abandoned at any time due to a number of factors. These factors include, but are not limited to, funding constraints, safety or a change in market demand. For each of our drug candidate programs, we periodically assess the scientific progress and merits of the programs to determine if continued research and development is economically viable. Some programs may be terminated due to the lack of scientific progress and lack of prospects for ultimate commercialization.
Our clinical trial cost accruals are based on estimates of patient enrollment and related costs at clinical investigator sites, as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf.
We estimate preclinical and clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on our behalf. In accruing service fees, we estimate the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses and expensed when the services are rendered.
General and Administrative Expenses.
Our general and administrative expenses for the three months ended March 31,September 30, 2023 increaseddecreased by $1,293,325approximately $1.9 million to $2,478,055$1.0 million from $1,184,730$2.9 million for the three months ended March 31,September 30, 2022. This increasedecrease is primarily attributable to a decrease in employee stock-based compensation of $1.9 million due to a reduction in stock awards granted. Reimbursements from CorLyst totaled $26,000 for rent and other costs during the fair valuethree months ended September 30, 2023, approximately $5,300 less than reimbursements received during the same period in 2022.
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During the nine months ended September 30, 2023, our general and administrative expenses decreased by $1.6 million to $4.5 million from $6.1 million for the nine months ended September 30, 2022. We experienced decreases in employee stock-based compensation of $1,310,875$3.3 million due to a reduction in stock awards granted. This decrease was offset primarily by net increases in professional fees of $1.3 million related to the stock purchase warrant grantedwarrants we issued to Spartan underCapital and in payroll and related costs of $430,000 related to our new CEO and the amended consulting agreement (see Note 2 totermination of our COO. Reimbursements from CorLyst totaled $90,000 for rent and other costs during the condensed consolidated financial statements), which was primarily offset by a decreasenine months ended September 30, 2023, approximately $4,700 less than reimbursements received during the same period in taxes.
2022.
Other Income
Other income represents interest income of $83,462$86,000 and $1,583$37,000 for the three months ended March 31,September 30, 2023 and 2022, respectively, and $271,000 and $46,000 for the nine months ended September 30, 2023 and 2022, respectively.
Income Tax Benefit.
We did not recognize any income tax benefit for the three or nine months ended March 31,September 30, 2023 or 2022.
Cash Flows
The following table sets forth our sources and uses of cash and cash equivalents for the threenine months ended March 31,September 30, 2023 and 2022:
| Three months ended | Nine months ended | |||||||||||||||
| March 31, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net cash (used in) provided by: | ||||||||||||||||
| Operating activities | $ | (2,114,070 | ) | $ | (1,802,926 | ) | $ | (5,939,478 | ) | $ | (7,107,758 | ) | ||||
| Investing activities | (2,776 | ) | - | |||||||||||||
| Financing activities | 6,352,077 | (300,000 | ) | 6,299,331 | (335,247 | ) | ||||||||||
| Net increase (decrease) in cash | $ | 4,238,077 | $ | (2,102,926 | ) | |||||||||||
| Net (decrease) increase in cash | $ | 357,077 | $ | (7,443,005 | ) | |||||||||||
Net cash used in operating activities
We used net cash in our operating activities of $2,144,070$5,939,478 and $1,802,926$7,107,758 during the threenine months ended March 31,September 30, 2023 and 2022, respectively. The increase in cash used in operating activities during the first quarter of 2023 compared to the same period in 2022 was primarily related to increased cash compensation to our executive team and directors.
As we continue our clinical trial for NGC-CapecitabineNGC-Cap and evaluate the other NGC drugs in our portfolio, we anticipate our research and development efforts and ongoing general and administrative costs will continue to generate negative cash flows from operating activities for the foreseeable future. These amountsUntil we raise additional funds and begin a new clinical trial, we anticipate clinical trial costs will begin to decrease when compared to prior periods duesince we are currently only conducting one clinical trial for NGC-Cap.
Net cash used in investing activities
We used net cash in our investing activities of $2,776 during the nine months ended September 30, 2023 to our current cash balances unless we raise enough funds to conduct future clinical trials.purchase property and equipment. We did not have a similar expense during the same period in 2022.
Net cash (used in) provided by financing activities
During the threenine months ended March 31,September 30, 2023, we raised net proceeds of $6.4 million from the sale of 8,432,192 shares of our common stock. We used net cash in financing activities during the threenine months ended March 31,September 30, 2022 of $300,000 to purchase 100,000 shares of our common stock from a licensee.licensee and $35,247 to pay income taxes owed on vested stock-based compensation.
LiquidityGoing Concern and Management’s Plans
At March 31, 2023 we had $10.7 million in cash and cash equivalents.
We have incurred losses and net cash used in our operating activities during the three months ended March 31, 2023, which we expect to continue for the foreseeable future. We have no sales. We have incurred losses since our inception, devoting substantially all of our efforts toward research and development, and have an accumulated deficit of $68.3$73.0 million at March 31,September 30, 2023. During the threenine months ended March 31,September 30, 2023, we generated a net loss of $4.0$8.7 million and used $5.9 million in net cash for operating activities from continuing operations. We expect continued operating losses and negative cash flow from operations for the foreseeable future.
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During the nine months ended September 30, 2023, we raised gross proceeds of $7.0 million (net proceeds of $6.4 million) from the sale of 8,432,192 shares of our common stock, as described in Note 2 to the condensed consolidated financial statements. We are using the net proceeds from these financings to prepare for future clinical trials, and on research and development expenses, working capital and other general corporate purposes.
Our condensed consolidated financial statements have been prepared using U.S. GAAP and are based on the assumption that we will continue as a going concern, which $1.7 millioncontemplates the realization of assets and liquidation of liabilities in the normal course of business. We face certain risks and uncertainties that are non-cash expenses.present in many emerging pharmaceutical companies regarding product development, limited working capital, recurring losses and negative cash flow from operations, future profitability, ability to obtain future capital, protection of patents, technologies and property rights, competition, rapid technological change, navigating the domestic and major foreign markets’ regulatory and clinical environment, recruiting and retaining key personnel, dependence on third party manufacturing organizations, third party collaboration and licensing agreements, lack of sales and marketing activities. We currently have no customers or pharmaceutical products to sell or distribute. These risks and other factors raise substantial doubt about our ability to continue as a going concern.
At September 30, 2023, we had cash and cash equivalents totaling $6.9 million. Based on our current plans, we believe our current cash balance is adequatebalances will enable us to complete our current clinical trial in NGC-Cap, prepare for at leasta Phase 2 trial for NGC-Cap, and fund our administrative costs through the next twelve months without considering amounts available from the Purchase Agreement with Lincoln Park.second quarter of 2024. Our ability to execute our longer-term operating plans, including future clinical trials for our portfolio ofNGC drugs, will depend on our ability to obtain additional funding from the sale of equity and/or debt securities, a strategic transaction or other funding transactions. We plan to continue to actively pursue financing alternatives, including out-licensing and/or entering into partnerships on any of our non-core assets, but there can be no assurance that we will obtain the necessary funding in the future when needed.necessary.
We had no revenue during the nine months ended September 30, 2023 and do not have any revenue under contract or any immediate sales prospects. Our estimateprimary uses of future cash needs is based on assumptions that may proveare to be wrong, and we could utilize our available cash sooner than we currently expect. Our ultimate success depends on the outcome offund our planned clinical trials, and our research and development activities, as disclosed above. We expectexpenditures and for operating expenses. Cash used to incur additional losses infund operating expenses is impacted by the future, and we will need to raise additional capital to fully implement our business plan if the coststiming of our clinical trials are greater than we expect or they take longer than anticipated. We also expect to incur increased general and administrative expenses in the future. In addition, there may be costswhen we incur as we developand pay these drug products that we do not currently anticipate, requiring us to need additional capital sooner than currently expected.expenses.
We are hoping to raise additional funds in late 2023 or early 2024 but will only do so if terms are acceptable to us. Additional funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, or suspend our current or planned future clinical trial plans, or research and development programs. This may also cause us to not meet diligence obligations contained in certain of our license agreements and put these assets at risk. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Our future capital requirements will depend on many factors, including:
| ● | the cost of our current Phase 1B and planned Phase 2 clinical | |
| ● | the initiation, progress, timing, costs and results of drug manufacturing, pre-clinical studies, and any clinical trials | |
| ● | the number and characteristics of product candidates that we pursue; | |
| ● | the outcome, timing, and costs of seeking regulatory approvals; | |
| ● | the costs associated with hiring additional personnel and consultants for our pre-clinical and clinical activities; | |
| ● | the emergence of competing therapies and other adverse market developments; | |
| ● | the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending, and enforcing patent claims, including litigation costs and the outcome of such litigation; | |
| ● | the extent to which we in-license or acquire other products and technologies; and | |
| ● | the costs of operating as a public company. |
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Until such time as we can generate substantial product revenues to support our capital requirements, if ever, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. We currently have an effective S-3 shelf registration statement on file with the SEC, which provides us flexibility and optionality to raise capital, including pursuant to a Purchase Agreement with Lincoln Park Capital or a future at-the-market offering, but there can be no assurance that capital will continue to be available to us on acceptable terms, won’t be limited, or be available at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
Uncertainty concerning our ability to continue as a going concern may hinder our ability to obtain future financing. Continued operations and our ability to continue as a going concern are dependent on our ability to obtain additional funding in the future and thereafter, and no assurances can be given that such funding will be available at all, in a sufficient amount, or on reasonable terms. Without additional funds from debt or equity financing, sales of assets, sales or out-licenses of intellectual property or technologies, or other transactions providing funds, we will rapidly exhaust our resources, be unable to meet diligence obligations in license agreements and be unable to continue operations. Absent additional funding, we believe that our cash and cash equivalents will not be sufficient to fund our operations for a period of one year or more after the date that these condensed consolidated financial statements are available to be issued based on the timing and amount of our projected net loss from continuing operations and cash to be used in operating activities during that period of time.
As a result, substantial doubt exists about our ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are available to be issued. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be different should we be unable to continue as a going concern based on the outcome of these uncertainties described above.
Our estimate of future cash needs is based on assumptions that may prove to be wrong, and we could utilize our available cash sooner than we currently expect. Our ultimate success depends on the outcome of our planned clinical trials and our research and development activities, as disclosed above. We expect to incur additional losses in the future, and we will need to raise additional capital to fully implement our business plan if the costs of our clinical trials are greater than we expect or they take longer than anticipated. We also expect to incur increased general and administrative expenses in the future. In addition, there may be costs we incur as we develop these drug products that we do not currently anticipate, requiring us to need additional capital sooner than currently expected.
Contractual Obligations and Commitments
There have been no significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Off Balance Sheet Arrangements
At March 31,September 30, 2023, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Use of Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements,Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.
We believe that the estimates, assumptions, and judgments involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Actual results could differ from the estimates we use in applying our critical accounting policies. We are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
There have been no changes in our critical accounting policies fromsince our most recent Annual Report on Form 10-K.
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Recently Issued Accounting Pronouncements
We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 3 is not applicable to us as a smaller reporting company and has been omitted.
Item 4. Controls and Procedures
At March As of September 3031,, 2023, management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the evaluation of its disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at March as of September 3031,, 2023 to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31,September 30, 2023 that have materially affected or are reasonably likely to materially affect the Company’sour internal control over financial reporting.
PartPART II. Other InformationOTHER INFORMATION
Item 1. Legal Proceedings
We are currently not a party to any material legal proceedings.
Item 1A. Risk Factors
In addition to the information set forth in this report, you should carefully consider the risk factors discussed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022.
Our financial statements contain a statement regarding a substantial doubt about the Company’s ability to continue as a going concern.
We had no revenue during the nine months ended September 30, 2023 and do not have any revenue under contract or any immediate sales prospects. Our primary uses of cash are to fund our planned clinical trials, research and development expenditures and for operating expenses. Cash used to fund operating expenses is impacted by the timing of when we incur and pay these expenses using U.S. GAAP, and are based on the assumption that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We face certain risks and uncertainties that are present in many emerging pharmaceutical companies regarding product development, limited working capital, recurring losses and negative cash flow from operations, future profitability, ability to obtain future capital, protection of patents, technologies and property rights, competition, rapid technological change, navigating the domestic and major foreign markets’ regulatory and clinical environment, recruiting and retaining key personnel, dependence on third party manufacturing organizations, third party collaboration and licensing agreements, lack of sales and marketing activities. We currently have no customers or pharmaceutical products to sell or distribute. These risks and other factors raise substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is dependent on our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from the ordinary course of business operations when they become due. The substantial doubt about our ability to continue as a going concern may affect the price of our common stock, may impact our relationship with third parties with whom we do business, may impact our ability to raise additional capital and may impact our ability to comply going forward with covenants in our debt agreements.
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If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions, interruptions or disruptions to operations or clinical trials, reputational harm, litigation, fines and penalties.
In the ordinary course of our business, we, or the third parties upon which we rely, process, collect, receive, store, use, transmit, transfer, make accessible, protect, secure, dispose of, disclose and share proprietary, confidential, and sensitive data, including personal data (such as health-related data), intellectual property, and trade secrets.
Cyberattacks, malicious internet-based activity, online and offline fraud and other similar activities threaten the confidentiality, integrity, and availability of our sensitive information and information technology systems, and those of the third parties upon which we rely.
We and the third parties upon which we rely are subject to a variety of evolving threats, including but not limited to, social engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunction, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fire, flood, and other similar threats.
We rely on third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, cloud-based infrastructure, drug suppliers, data center facilities, encryption and authentication technology, employee email, content delivery to customers, and other functions. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place.
Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information or our information technology systems, or those of the third parties upon whom we rely. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to perform our research and development activities.
There have been no other material changes to our risk factors as described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.(a) Recent Sale of Unregistered Securities
There were no sales of unregistered securities during the three months ended September 30, 2023.
(b) Use of Proceeds from Public Offering of Common Stock
None.
(c) Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information
None.During the three months ended September 30, 2023, there were no modifications, adoptions or terminationsby any directors or officers to any contract, instruction or written plan for the purchase or sale of securities of the Company that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or non-Rule 10b5-1 trading agreements.
Item 6. Exhibits
* Filed herewith.
++ This certification is being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350 and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PROCESSA PHARMACEUTICALS, INC. | ||
| By: | /s/ | |
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: | ||
| By: | /s/ James Stanker | |
| James Stanker | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| Dated: |