(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

(Name, address, including zip code, and telephone number, including area code, of agent for service)

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ~~[ ]~~☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ~~[ ]~~☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ~~[ ]~~☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 to Section 7(a)(2)(B) of the Securities Act. ~~[ ]~~☐

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED ~~SEPTEMBER 16, 2020~~DECEMBER 29, 2023

~~This is a firm commitment public~~Up to ● Placement Agent Warrants to Purchase up to ● Shares of Common Stock

Up to ● Shares of Common Stock underlying such Pre-Funded Warrants, Common Warrants and Placement Agent Warrants

~~Prior~~stock and accompanying common warrants to ~~this offering, there has been a limited public market for~~purchase up to ● shares of our common stock on(the “Common Warrants”), at an assumed combined public offering price of $● per share of common stock and accompanying Common Warrant (equal to the ~~OTCQB® Market, or OTCQB. On September 15, 2020, the~~ last ~~reported~~ sale price of our common stock as reported ~~on the OTCQB was $8.45 per share. We have applied to list our common stock on the~~by The Nasdaq Capital Market ~~or Nasdaq, under~~on ●, 202●). The Common Warrants have an exercise price of $● per share (●% of the ~~symbol “PCSA” and our common stock has been approved for listing contingent on the completion of this offering. We have assumed a~~combined public offering price per share of ~~$8.45, which represents~~ the ~~last reported sales~~common stock and accompanying Common Warrant) and will be exercisable beginning on the effective date of stockholder approval of the issuance of the shares upon exercise of the warrants (“Warrant Stockholder Approval”), provided however, if the Pricing Conditions (as defined below) are met, the Common Warrant will be exercisable upon issuance (the “Initial Exercise Date”). The Common Warrants will expire on the five-year anniversary date of the Initial Exercise Date. As used herein “Pricing Conditions” means that the combined offering price per share and accompanying Common Warrant is such that the Warrant Stockholder Approval is not required under Nasdaq rules because either (i) the offering is an at-the-market offering under Nasdaq rules and such price equals or exceeds the sum of (a) the applicable “Minimum Price” per share under Nasdaq rule 5635(d) plus (b) $0.125 per whole share of common stock underlying the Common Warrant or (ii) the offering is a discounted offering where the pricing and discount (including attributing a value of $0.125 per whole share underlying the warrants) meet the pricing requirements under the Nasdaq rules.

We are also offering to each purchaser whose purchase of shares of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the investor 9.99%) of our outstanding common stock immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, pre-funded warrants (the “Pre-Funded Warrants”), in lieu of shares of common stock that would otherwise result in the purchaser’s beneficial ownership exceeding 4.99% of our outstanding common stock. Subject to limited exceptions, a holder of Pre-Funded Warrants will not have the right to exercise any portion of its Pre-Funded Warrants if the investor, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. Each Pre-Funded Warrant will be exercisable for one share of common stock at an exercise price of $0.0001 per share of common stock. The public offering price per Pre-Funded Warrant and accompanying Common Warrant, is equal to the public offering price per share of common stock and accompanying Common Warrant less $0.0001. Each Pre-Funded Warrant will be exercisable upon issuance and will expire when exercised in full. This prospectus also relates to the offering of the shares of common stock issuable upon exercise of the pre-funded warrants.

For each Pre-Funded Warrant we sell, the number of shares of common stock we are offering will be decreased on a one-for-one basis. Because a Common Warrant is being sold together in this offering with each share of common stock and, in the alternative, each Pre-Funded Warrant to purchase one share of common stock, the number of Common Warrants sold in this offering will not change as a result of a change in the mix of the shares of our common stock and Pre-Funded Warrants sold. The shares of common stock or Pre-Funded Warrants, as ~~reported~~applicable, and the accompanying Common Warrants, can only be purchased together in this offering but will be issued separately and will be immediately separable upon issuance.

We are also registering shares of common stock that are issuable from time to time upon exercise of the Pre-Funded Warrants, Common Warrants and Placement Agent Warrants (as defined below).

This offering will terminate on ●, 202●, unless we decide to terminate the ~~OTCQB on September 15, 2020.~~offering (which we may do at any time in our discretion) prior to that date. We will have one closing for all the securities purchased in this offering. The combined public offering price per share (or pre-funded warrant) and accompanying Common Warrants will be fixed for the duration of this offering.

We have engaged ●, or the placement agent, to act as our exclusive placement agent in connection with this offering. The placement agent has agreed to use its reasonable best efforts to arrange for the sale of the securities offered by this prospectus. The placement agent is not purchasing or selling any of the securities we are offering and the placement agent is not required to arrange the purchase or sale of any specific number or dollar amount of securities. We have agreed to pay to the placement agent the placement agent fees set forth in the table below, which assumes that we sell all of the securities offered by this prospectus. Since we will deliver the securities to be issued in this offering upon our receipt of investor funds, there is no arrangement for funds to be received in escrow, trust or similar arrangement. There is no ~~assurance that~~minimum offering requirement as a condition of closing of this offering. Because there is no minimum offering amount required as a condition to closing this offering, we may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to pursue our business goals described in this prospectus. In addition, because there is no escrow account and no minimum offering amount, investors could be ~~completed, or as~~in a position where they have invested in our company, but we are unable to fulfill all of our contemplated objectives due to a lack of interest in this offering. Further, any proceeds from the ~~terms~~sale of securities offered by us will be available for our immediate use, despite uncertainty about whether we would be able to use such funds to effectively implement our business plan. See the section entitled “Risk Factors” for more information. We will bear all costs associated with the offering. See “Plan of Distribution” on page 35 of this ~~offering. In addition, the closing sales price of our~~prospectus for more information regarding these arrangements.

Our common stock ~~as reported~~is listed on The Nasdaq Capital Market under the ~~OTCQB may not be indicative of the final offering price or market~~symbol “PCSA.” The closing price of our common stock on ●, 202●, as reported by The Nasdaq ~~and there can be~~Capital Market, was $● per share. There is no ~~assurance that a~~established public trading market for the Pre-Funded Warrants or the Common Warrants, and we do not expect a market to develop. We do not intend to apply for listing of the Pre-Funded Warrants or the Common Warrants on any securities exchange or nationally recognized trading system. Without an active trading market, the liquidity of the Pre-Funded Warrants and the Common Warrants will ~~develop for our shares~~be limited.

The public offering price per share of common stock ~~on Nasdaq. The final public offering price~~and accompanying Common Warrant and any Pre-Funded Warrant and accompanying Common Warrant will be determined ~~through negotiation between~~by us ~~and~~at the ~~underwriters in~~time of pricing, may be at a discount to the ~~offering~~current market price, and the recent market price used throughout this prospectus may not be indicative of the final public offering price. ~~In addition, quotes of stock trading prices on an over-the-counter marketplace may not be indicative of the market price on a national securities exchange.~~

On December 23, 2019, we effected a one-for-7 reverse split of our common stock, or the Reverse Split. Unless otherwise specified or the context otherwise indicates, the information contained in this prospectus has been adjusted to give effect to the Reverse Split.

Investing in our ~~common stock is highly speculative and~~securities involves a high degree of risk. See “Risk Factors” beginning on page ~~10.~~10 of this prospectus before investing. You should also consider the risk factors described or referred to in any documents incorporated by reference in this prospectus, and in any applicable prospectus supplement, before investing in these securities.

We are a “smaller reporting company” as defined under federal securities law and we have elected to comply with certain reduced public company reporting requirements available to smaller reporting companies. See the section titled “Prospectus Summary — Implications of Being a Smaller Reporting Company.”

⁽¹⁾~~See “Underwriting” for a description of compensation payable to the underwriters.~~

We have granted the underwriters an option to purchase up to 322,500 additional shares of our common stock. The underwriters can exercise this option at any time within 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any other state securities commission has approved or disapproved of these securities or ~~determined if~~passed upon the adequacy or accuracy of this ~~prospectus is truthful or complete.~~prospectus. Any representation to the contrary is a criminal offense.

Delivery of the shares of common stock is expected to be made on or about ~~, 2020.~~

ABOUT THIS PROSPECTUS

You should rely only on the information ~~contained in~~we have provided or incorporated by reference into this prospectus, any applicable prospectus supplement and any related free writing prospectus. We incorporate by reference important information into this prospectus. You may obtain the information incorporated by reference without charge by following the instructions under “Where You Can Find More Information.” You should carefully read this prospectus as well as additional information described under “Incorporation of Certain Information By Reference,” before deciding to invest in our securities.

We have not, and the ~~underwriters~~placement agent and its affiliates have not, authorized anyone to provide you with any information or to make any ~~representations other than those~~representation not contained or incorporated by reference in this prospectus or any related free writing prospectus. We do not, and the placement agent and its affiliates do not, take noany responsibility for, and can provide no assurance as to the reliability of, any ~~other~~ information that others may ~~give~~provide to you. This prospectus is not an offer to sell ~~only the shares offered hereby, but only under circumstances~~or an offer to buy securities in any jurisdiction where offers and ~~in jurisdictions where it is lawful to do so.~~sales are not permitted. The information ~~contained~~ in this prospectus is ~~current~~accurate only as of its date, regardless of ~~its~~the time of delivery of this prospectus or any sale of ~~shares~~securities. You should also read and consider the information in the documents to which we have referred you under the caption “Where You Can Find More Information” in the prospectus.

To the extent there is a conflict between the information contained in this prospectus, on the one hand, and the information contained in any document incorporated by reference filed with the Securities and Exchange Commission (“SEC”) before the date of this prospectus, on the other hand, you should rely on the information in this prospectus. If any statement in a document incorporated by reference is inconsistent with a statement in another document incorporated by reference having a later date, the statement in the document having the late date modifies or supersedes the earlier statement.

We further note that the representations, warranties and covenants made by us in any agreement that is incorporated by reference or filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our ~~common stock. Our business, financial condition, results of operations and prospects may have changed since that date.~~affairs.

For investors outside the United States: neither we nor the ~~underwriters~~placement agent have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States of America. Persons outside the U.S. who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus and any such free writing prospectus outside of the U.S.

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. We believe that the information from these third-party publications, research, surveys and studies included in this prospectus is reliable. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. These data involve a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates.

This prospectus includes trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names included in this prospectus are the property of their respective owners.

As used in this prospectus, unless the context indicates or otherwise requires, “the Company,” “our Company,” “we,” “us,” and “our” refer to Processa Pharmaceuticals, Inc., a Delaware corporation, and its consolidated subsidiary. ~~For other defined terms, please see the Glossary on the following page.~~

~~GLOSSARY OF CERTAIN SCIENTIFIC TERMS~~

~~The medical and scientific terms used in this prospectus have the following meanings:~~

~~“Active metabolite” means a drug that is processed by the body into an altered form which effects the body.~~

“Analog” means a compound having a structure similar to that of an approved drug but differing from it in respect to a certain component of the molecule which may cause it to have similar or different effects on the body.

“cGCP” is current Good Clinical Practices. The FDA and other regulatory agencies promulgate regulations and standards, commonly referred to as current Good Clinical Practices, for designing, conducting, monitoring, auditing and reporting the results of clinical trials to ensure that the data and results are accurate and that the rights and welfare of trial participants are adequately protected.

“cGMP” is current Good Manufacturing Practices. The FDA and other regulatory agencies promulgate regulations and standards, commonly referred to as current Good Manufacturing Practices, which include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation.

~~“CRO” means a Contract Research Organization.~~

~~“EMA” means the European Medicines Agency.~~

~~“FDA” means the Food and Drug Administration.~~

“IND” means an Investigational New Drug Application. Before testing a new drug on human subjects, the company must file an IND with the FDA. Information must be produced on the absorption, distribution, metabolism, and excretion properties of the drug and detailed protocols for testing on human subjects must be submitted.

~~“Indication” means a condition which makes a particular treatment or procedure advisable.~~

~~“Moiety” means an active or functional part of a molecule.~~

“NDA” means a New Drug Application submitted to the FDA. Under the Food, Drug, and Cosmetic Act of 1938, an NDA is submitted to the FDA enumerating the uses of the drug and providing evidence of its safety.

~~“NL” means Necrobiosis Lipoidica, a chronic, disfiguring condition.~~

~~“Osteonecrosis” means the death of bone cells due to decreased blood flow. It can lead to pain and collapse of areas of bone.~~

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making an investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including ~~our consolidated financial statements and the related notes thereto and~~ the information set forth under the “Risk Factors” ~~and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections~~section of this ~~prospectus.~~prospectus and in the documents incorporated by reference into this prospectus for a discussion of the risks involved in investing in our securities.

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 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 justify the benefit-risk assessment required for FDA approval when designing the development programs of new drug products.

Our 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 the FDA’s Project Optimus and the related Draft Guidance have been used by our regulatory science approach in a number of non-oncology drugs, our 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
	●	greater ability to evaluate the benefit-risk of a drug compared to existing therapy, which allows prescribers to provide better treatment options for each patient.

In January 2023, we announced our strategic prioritization to advance our pipeline of NGC proprietary small molecule oncology drugs. The NGC products are new chemical entities, but they work by changing 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. 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 capecitabine, capecitabine being the oral prodrug of the cancer drug 5-fluorouracil (5-FU). PCS6422, without having any clinically meaningful biological effect itself, alters the metabolism of 5-FU, resulting in more 5-FU distribution to the cancer cells. In clinical trials, NGC-Cap has shown a safety profile different than capecitabine when administered alone. Side effects such as Hand-Foot Syndrome (HFS) and cardiotoxicity typically occur in up to 50-70% of patients treated with capecitabine and are caused by specific capecitabine metabolites. These types of toxicities frequently result in decreased doses, interrupted doses, or discontinuation of treatment with capecitabine. Since a much smaller amount of these metabolites are formed with NGC-Cap, these side effects appear in less patients and are less severe when they do occur. In addition, NGC-Cap has been found to be up to 50 times more potent than capecitabine based on the systemic exposure of the capecitabine metabolite 5-FU, which is metabolized to the cancer-killing metabolites. Like capecitabine, NGC-Cap could be used to treat patients with various cancers, such as metastatic colorectal, gastrointestinal, breast, and pancreatic. We estimate at least 200,000 patients in the United States were newly diagnosed in 2022 with metastatic colorectal, gastrointestinal, breast, and pancreatic cancers. On December 11, 2023, we had a successful meeting with the FDA regarding the next Phase 2 study supporting the advancement of NGC-Cap for cancer patients. The meeting with the FDA was supported by the interim results from the ongoing Phase 1B study that should complete enrollment in the first quarter of 2024.

	●	PCS3117, also referred to as NGC-Gemcitabine (NGC-Gem), is an oral analog of gemcitabine that is converted to its active metabolite by a different enzyme system than gemcitabine resulting in a positive response in gemcitabine patients as well as some gemcitabine treatment-resistant patients. Like gemcitabine, NGC-Gem could be used to treat patients with various cancers such as pancreatic, biliary tract, lung, ovarian, and breast. We estimate more than 275,000 patients in the United States were newly diagnosed in 2022 with pancreatic, biliary tract, lung, ovarian, and breast cancer. We plan to meet with the FDA to discuss potential study designs including implementation of the Project Optimus initiative as part of the design in 2024.

	●	PCS11T, also referred to as NGC-Irinotecan (NGC-Iri), is a prodrug of the active metabolite of irinotecan (SN-38). The chemical structure of NGC-Iri influences the uptake of the drug into cancer cells, resulting in more NGC-Iri entering cancer cells than normal cells in mice. These levels were significantly greater than those seen with irinotecan, resulting in lower doses of NGC-Iri having greater efficacy than irinotecan and improved safety in animal models. Like irinotecan, NGC-Iri could be used to treat patients with various cancers such as lung, colorectal, gastrointestinal, and pancreatic cancer. We estimate at least 200,000 patients in the United States were newly diagnosed in 2022 with lung, colorectal, gastrointestinal, and pancreatic cancer. We plan to conduct IND-enabling and toxicology studies in 2024.

We have completed our Phase 2A trial for PCS12852 in gastroparesis patients with positive results. Additionally, in February 2023, due primarily to the inability to identify and enroll patients in our rare disease Phase 2 trial for PCS499 in ulcerative Necrobiosis Lipoidica (uNL), we decided to cease further enrollment in the PCS499 trial 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 these non-core drug assets, which may include out-licensing or partnering these assets with one or more third parties.

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 ~~with high unmet medical needs.~~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.

~~Processa Pharmaceuticals, Inc.~~Historically, much of oncology drug development has searched for novel or different ways to treat cancer. Our approach is ~~a clinical-stage biopharmaceutical company focused~~to take three current FDA-approved cancer drugs and modify and improve how the human body metabolizes and/or distributes these NGC treatments compared to their presently approved counterpart drugs while maintaining the cancer-killing mechanism of action; thus, our reason for calling our drugs Next Generation Chemotherapy (or NGC) treatments. Part of the development includes determining the optimal dosage regimen based on the dose-response relationship as described in the FDA’s Project Optimus Initiative and 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 ~~of drug products that are intended~~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 ~~provide treatment for and improve~~extend the survival and/or quality of life for more patients diagnosed with cancer while decreasing the number of patients who ~~have a high unmet medical need condition~~are required to dose-adjust or ~~who have no alternative treatment. Our most advanced product candidate, PCS499, is an oral tablet that is a deuterated analog~~discontinue treatment because of ~~one~~side effects or lack of ~~the major metabolites of pentoxifylline (PTX or Trental~~^®). We have completed the patient portion of our Phase 2A trial for PCS499 and are in the process of closing the trial, and we plan to begin recruiting for a Phase 2B trial in 2021. We also have four newly licensed drugs (PCS12852, PCS6422, PCS11T and PCS100) and will begin developing these products once adequate funding has been obtained.response.

~~Our Strategy~~

Our vision is to develop drugs with potentially high return on investment and lower risk of development failure. Our portfolio drugs are focused on treating patients who do not have adequate treatment options for their conditions and have some clinical evidence supporting the efficacy of the drug, whether it be evidence with the drug itself or a drug with similar pharmacological properties. Given the prior success of our development team, the regulatory science approach that we employ not only allows us to develop drugs focused on FDA approval, but also allows us to select drugs for our portfolio which may have a greater chance for approval in a population of patients who need treatment options. The key pillars of our strategy to achieve our vision include:

~~(i)~~	identifying drugs that have potential efficacy in patients with an unmet medical need, as demonstrated by some clinical evidence that the targeted pharmacology of the drug provides clinical efficacy in the targeted patient population;

~~(ii)~~	~~identifying drug products that have been developed or approved for other indications but can be repurposed to treat those patients who have an unmet medical need; and~~

~~(iii)~~	~~identifying drugs that can be quickly developed such that within 2-4 years, critical value-added clinical milestones can be achieved while advancing the drug closer to commercialization.~~

~~Our Team~~

Our drug development efforts are driven by our extensive knowledge in applying rigorous regulatory science to the FDA approval pathway. We have assembled a seasoned management team with extensive experience in developing therapies, including advancing product candidates from preclinical research through clinical development and ultimately regulatory approval and commercialization. Together, our management team has completed over 30 FDA approvals. Our team is led by our Chairman and Chief Executive Officer David Young, Pharm.D., Ph.D., who has extensive experience in research, regulatory approval and business development and who served at Questcor for eight years as independent director and Chief Scientific Officer, helping lead to the ultimate sale of Questcor in 2014.

~~Our Pipeline~~

The table below summarizes our clinical product pipeline. We have completed the patient portion of our Phase 2A clinical trial for PCS499, however, the finalization of the trial data and its closeout has been delayed due to the ongoing COVID-19 pandemic.

~~PCS499~~

~~Our lead product, PCS499, is an oral tablet that is a deuterated analog of one of the major metabolites of pentoxifylline (PTX or Trental~~^®). PCS499 is classified by FDA as a new molecular entity. PCS499 and its metabolites act on multiple pharmacological targets that are important in a variety of conditions. We have identified Necrobiosis Lipoidica (NL) as our lead indication for PCS499. NL is a chronic, disfiguring condition affecting the skin and the tissue under the skin typically on the lower extremities with no currently approved FDA treatments. NL presents more commonly in women than in men and occurs more often in people with diabetes. Ulceration occurs in approximately 30% of NL patients, which can lead to more severe complications, such as deep tissue infections and osteonecrosis threatening the life of the limb. Approximately 22,000 - 55,000 people in the United States and more than 120,000 people outside the United States are affected with ulcerated NL.

The degeneration of tissue occurring at the NL lesion site may be caused by a number of pathophysiological changes, which has made it extremely difficult to develop effective treatments for this condition. Because PCS499 and its metabolites affect a number of biological pathways, several of which could contribute to the pathophysiology associated with NL, PCS499 may provide a novel treatment solution for NL, a condition for which there are currently no FDA-approved treatments.

On June 18, 2018, the FDA granted orphan-drug designation for PCS499 for the treatment of NL. On September 28, 2018, the IND for PCS499 in NL became effective, such that we could move forward with a Phase 2A multicenter, open-label prospective trial designed to determine the safety and tolerability of PCS499 in patients with NL. The study initially had a six-month treatment phase and a six-month optional extension phase. In December 2019, we informed patients and sites that the study would conclude after the treatment phase and there would no longer be an extension phase. The first enrolled NL patient in this Phase 2A clinical trial was dosed on January 29, 2019 and the study completed enrollment on August 23, 2019. The last patient visit took place in February 2020. Due to COVID-19 related restrictions at certain sites, study closeout and database lock have yet to be completed.

The main objective of the trial was to evaluate the safety and tolerability of PCS499 in patients with NL and to use the collected safety and efficacy data to design future clinical trials. Based on toxicology studies and healthy human volunteer studies, Processa and the FDA agreed that a PCS499 dose of 1.8 grams/day would be the highest dose administered to NL patients in this Phase 2A trial. As anticipated, the PCS499 dose of 1.8 grams/day, 50% greater than the maximum tolerated dose of PTX, appeared to be well tolerated with no serious adverse events reported. All adverse events reported in the study were mild in severity. As expected, gastrointestinal symptoms were the most noted adverse events and reported in four patients, all of which were mild in severity and resolved within 1-2 weeks of starting dosing.

~~-1-~~

Two of the twelve patients in the study presented with more severe ulcerated NL and had ulcers for more than two months prior to dosing. At baseline, the reference ulcer in one of the two patients measured 3.5 cm2 and had completely closed by Month 2 of treatment. The second patient had a baseline reference ulcer of 1.2 cm2 which completely closed by Month 9 during the patient’s treatment extension period. In addition, while in the trial, both patients also developed small ulcers at other sites, possibly related to contact trauma, and these ulcers resolved within one month. However, the other ten patients, presenting with mild to moderate NL and no ulceration, had more limited improvement of the NL lesions during treatment. Historically, less than 20% of all the patients with NL naturally progress to complete healing over many years after presenting with NL. Although the natural healing of the more severe NL patients with ulcers has not been evaluated independently, medical experts who treat NL patients believe that the natural progression of an open ulcerated wound to complete closure would be significantly less than the 20% reported as the maximum percentage of patients who naturally heal over several years after NL presentation.

On March 25, 2020, we met with the FDA and discussed the clinical program, as well as the nonclinical and clinical pharmacology plans to ultimately support the submission of the PCS499 New Drug Application (NDA) in the U.S. for the treatment of ulcers in NL patients. With input from the FDA, we will be designing the next trial as a randomized, placebo-controlled trial to evaluate the ability of PCS499 to completely close ulcers in patients with NL. We initially planned to begin recruiting for the randomized, placebo-controlled trial in the fourth quarter of 2020, but we now expect to begin recruiting patients in 2021 due to the ongoing COVID-19 pandemic. This PCS499 NL study will be a randomized, placebo-controlled Phase 2B study to better understand the potential response of NL patients on drug and on placebo. After obtaining the results from this Phase 2B study, we expect to meet with FDA to discuss our Phase 2B drug and placebo response findings while further discussing the next steps to obtain approval.

~~PCS12852~~

On August 19, 2020, we entered into a License Agreement (“Yuhan License Agreement”) with Yuhan Corporation (“Yuhan”), pursuant to which we acquired an exclusive license to develop, manufacture and commercialize PCS12852 (formerly known as YH12852) globally, excluding South Korea.

PCS12852 is a novel, potent and highly selective 5-hydroxytryptamine 4 (5-HT4) receptor agonist. Other 5-HT receptor agonists with less 5-HT4 selectivity have been shown to successfully treat gastrointestinal (GI) motility disorders such as chronic constipation, constipation-predominant irritable bowel syndrome, functional dyspepsia and gastroparesis. Less selective 5-HT4 agonists, such as cisapride, have been either removed from the market or not approved because of the cardiovascular side effects associated with the drugs binding to other receptors, especially 5-HT receptors other than 5-HT4.

We plan to meet with the FDA in early 2021 to further define the clinical development program required for the PCS12852 product and discuss a Phase 2A proof of concept randomized, placebo-controlled study for PCS12852 in a gastrointestinal (GI) motility dysfunction disorder (e.g., post-operative ileus also called gastrointestinal dysfunction (POGD), opioid induced constipation, chronic idiopathic constipation). The purpose of the Phase 2A trial would be to better define a dosage regimen of PCS128552 that could be potentially efficacious and safe in a larger pivotal study. The patients with these types of conditions have an abnormal pattern of GI motility in the absence of mechanical obstruction. For example, POGD is characterized by nausea, vomiting, abdominal distension and/or delated passage of flatus or stool, following surgery (most commonly with abdominal surgery). It is the most common cause of prolonged length of stay in hospital following GI surgery, leading to an increase in healthcare costs. The only FDA-approved drug to treat POGD is a mu-opioid receptor antagonist alvimopan (Entereg®), which is only available through a restricted program for short-term use due to the potential risk of myocardial infarction with long-term use.

Two clinical studies have been previously conducted by Yuhan with PCS12852. In the first-in-human clinical trial (Protocol YH12852-101), the initial safety and tolerability of PCS12852 were evaluated after single and multiple oral doses in healthy subjects. PCS12852 increased stool frequency with faster onset when compared to prucalopride, an FDA approved drug for the treatment of chronic idiopathic constipation. Compared to the group receiving prucalopride (an FDA approved drug for the treatment of chronic idiopathic constipation), the PCS12852 dose groups showed higher stool frequency for 24 hours following single dosing and had faster onset of spontaneous bowel movements (SBMs) with comparable or relatively higher Bristol Stool Form Scale score (lower stool consistency) for 24 hours following first dosing. In addition, based on an increase of ≥ 1 SBM/week from baseline during 7-day multiple dosing, the PCS12852 dose group had a higher percent of patients with an increase than the prucalopride group. All doses of PCS12852 were safe and well tolerated and no serious adverse events (SAE) occurred during the study. The most frequently reported adverse events (AEs) were headache, nausea and diarrhea which were temporal, manageable, and reversible within 24 hours. There were no clinically significant changes in platelet aggregation or ECG parameters including no sign of QTc prolongation in the study. The second study conducted was a Phase 1/2A clinical trial (Protocol YH12852-102) to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of PCS12852 immediate release (IR) formulation and delayed release (DR) formulation after multiple oral dosing. PCS12852 was safe and well tolerated after single and multiple administrations. The most frequent AEs for both the IR and DR formulations of PCS12852 were headache, nausea and diarrhea, but the incidences of these AEs were comparable with those of the prucalopride 2 mg group. These AEs, which were transient and mostly mild in severity, are also commonly observed with other 5-HT4 agonists. Both formulations of PCS12852 also showed pharmacologic activity as assessed using various pharmacodynamic parameters for stool assessment.

~~Yuhan had also conducted extensive toxicological studies for the product that demonstrated that the product is safe for use and can be moved quickly into Phase 2 studies.~~

~~-2-~~

~~PCS6422~~

On August 23, 2020, we entered into a License Agreement (“Elion License Agreement”) with Elion Oncology, Inc. (“Elion”), pursuant to which we acquired an exclusive contingent license to develop, manufacture and commercialize PCS6422 globally.

Elion acquired the eniluracil (PCS6422) product from Fennec Pharmaceuticals (formerly known as Adherex Technologies) in 2016. PCS6422 is an oral, potent, selective, and irreversible inhibitor of dihydropyrimidine dehydrogenase (DPD), the enzyme that rapidly metabolizes 5-FU, a common chemotherapy drug, to inactive metabolites, such as α-fluoro-β-alanine (F-Bal). F-Bal is thought to cause the neurotoxicity and Hand–Foot Syndrome (HFS) associated with 5-FU, and greater formation of F-Bal appears to be associated with a decrease in the antitumor activity of 5-FU. HFS can affect daily living activities, quality of life, and requires dose interruptions/adjustments and even therapy discontinuation resulting in suboptimal tumor effects. We believe that the inhibition of DPD by PCS6422 may significantly improve exposure to 5-FU and reduce 5-FU side effects related to F-Bal. One dose of PCS6422 irreversibly blocks DPD activity for up to two weeks until DPD levels recover via de novo synthesis of the DPD enzyme. Thus, we believe inhibition of tumor DPD will result in higher 5-FU intra-tumoral concentration and potentially better tumor response along with the decrease in F-Bal.

Fluoropyrimidines (e.g., 5-FU) are still the cornerstone of treatment for many different types of cancers, either as monotherapy or in combination with other chemotherapy agents by an estimated two million patients annually. Xeloda^®, an oral pro-drug of 5-FU, is approved as first-line therapy for metastatic colorectal and breast cancer. However, its use is limited by adverse effects such as the development of HFS in up to 60% of patients.

Elion evaluated the potential for the combination of PCS6422 with capecitabine (Xeloda®, and, together with PCS6422, known as ECAPE) as a treatment of advanced gastrointestinal (GI) tumors. Nonclinical efficacy data indicated that in colorectal cancer models, pretreatment with PCS6422 enhanced the antitumor activity of capecitabine. PCS6422 increased the antitumor potency of capecitabine while not increasing the toxicity. The antitumor efficacy of the combination of PCS6422 and capecitabine was tested in several xenograft animal models with human breast, pancreatic and colorectal cancer cells. These preclinical xenograft models demonstrate that PCS6422 potentiates the antitumor activity of capecitabine and significantly reduces the dose of capecitabine required to be efficacious.

Elion met with the FDA in 2019 and agreed upon the clinical development program required for the combination of PCS6422 and capecitabine as first-line therapy for metastatic colorectal cancer when treatment with fluoropyrimidine therapy alone is preferred. Subsequently, an IND has been granted safe to proceed by FDA on May 17, 2020, for the Phase 1B study. This Phase 1B study will evaluate the safety and tolerability of several dose combinations of PCS6422 and capecitabine in advanced GI tumor patients and should be initiated in the first half of 2021.

Other DPD enzyme inhibitors (e.g. Gimeracil used in Teysuno® approved only outside the US) act as competitive reversible inhibitors. These agents must be present when 5-FU or capecitabine are administered to inhibit 5-FU breakdown by DPD in order to improve the efficacy and safety profiles of 5-FU. Given the reversible nature of their effect on DPD, over time 5-FU metabolism to F-Bal will return, decreasing the amount of 5-FU in the cancer cells and decreasing the potential cytotoxicity on the cancer cells. There is also evidence that administering DPD inhibitors directly with 5-FU may also decrease the antitumor effect of the 5-FU. Because PCS6422 is an irreversible inactivator of DPD, it can be dosed the day before capecitabine administration and its effect on DPD can last longer than the reversible DPD inhibitors and beyond the time 5-FU exists in the cancer cell. We believe this can optimize the potential cytotoxic effect and minimize the metabolism of 5-FU.

Prior to Elion’s involvement, two multicenter Phase 3 studies were conducted in patients with colorectal cancer (CRC) with PCS6422 administered in 10-fold excess to 5-FU. Unfortunately, we believe the dose of PCS6422 during these trials was not optimal, and that PCS6422 was not administered early enough to irreversibly affect the DPD enzyme, thus the regimen tended to produce less antitumor benefit than the control arm with the standard regimen of 5-FU/leucovorin (LV) without PCS6422. Later preclinical work suggested that when PCS6422 was present at the same time as and in excess to 5-FU, it diminished the antitumor activity of 5-FU, which we believe supports the proposal of exploring clinically dosing PCS6422 several hours before 5-FU to allow its clearance before the administration of 5-FU.

~~PCS11T~~

On May 24, 2020, we entered into an exclusive License Agreement with Aposense, Ltd., (“Aposense”), pursuant to which we were granted a contingent license in Aposense’s patent rights and know-how to develop and commercialize their next generation irinotecan cancer drug, PCS11T (formerly known as ATT-11T). The grant of license is conditioned on the following being satisfied within 9 months of May 24, 2020 (or the agreement shall terminate): (i) our closing of an equity financing and successful up-listing to Nasdaq and (ii) Aposense obtaining the approval of the Israel Innovation Authority for the consummation of the transactions contemplated by the agreement, which approval was obtained on August 24, 2020.

PCS11T is a novel lipophilic anti-cancer pro-drug that is being developed for the treatment of the same solid tumors as prescribed for irinotecan. This pro-drug is a conjugate of a specific proprietary Aposense molecule connected to SN-38, the active metabolite of irinotecan. The proprietary molecule in PCS11T has been designed to allow PCS11T to bind to cell membranes to form an inactive pro-drug depot on the cell with SN-38 preferentially accumulating in the membrane of tumors cells and the tumor core. This unique characteristic may make the therapeutic window of PCS11T wider than other irinotecan products such that the antitumor effect of PCS11T could occur at a much lower dose with a milder adverse effect profile than irinotecan. Despite the widespread use of commercially marketed irinotecan products in the treatment of metastatic colorectal cancer and other cancers resulting in peak annual sales of approximately $1.1 billion, irinotecan has a narrow therapeutic window and includes an FDA “Black Box” warning for both neutropenia and severe diarrhea. There is, therefore, a substantial unmet need to overcome the limitations of the current commercially marketed irinotecan products, improving efficacy and reducing the severity of treatment emergent adverse events. We believe the potential wider therapeutic window of PCS11T will likely lead to more patients responding with less side effects when on PCS11T compared to other irinotecan products.

Pre-clinical studies conducted to date showed that PCS11T demonstrated tumor eradication at much lower doses than irinotecan across various tumor xenograft models. PCS11T does not affect acetyl choline esterase (AChE) activity in human and rat plasma in vitro, which would suggest that PCS11T will show an improved safety profile, compared to irinotecan, which is known for its cholinergic-related side effects.

~~-3-~~

We are currently planning to manufacture the product at a GMP facility, conduct the required toxicological studies required to file the IND and initiate the Phase 1B study in oncology patients with solid tumors in 2022.

~~PCS100~~

On August 29, 2019, we entered into an exclusive license agreement with Akashi Therapeutics, Inc. (“Akashi”) to develop and commercialize an anti-fibrotic, anti-inflammatory drug, PCS100 (formerly known as HT-100), which also promotes healthy muscle fiber regeneration. In previous clinical trials in Duchenne Muscular Dystrophy (DMD), PCS100 showed promising improvement in the muscle strength of non-ambulant pediatric patients. Although the FDA placed a full clinical hold on the DMD trial after a serious adverse event in a pediatric patient, the FDA has partially removed the clinical hold and defined how PCS100 can resume clinical trials in DMD. Once we have obtained adequate funding, we plan to develop PCS100 in rare adult fibrotic related diseases such as focal segmental glomerulosclerosis, idiopathic pulmonary fibrosis or Scleroderma. At the present time, we are evaluating the potential GMP manufacturing facilities and the potential indications for PCS100.

~~Other Recent Developments~~

~~Line of Credit Agreements~~

On September 20, 2019, we entered into two separate LOC Agreements (“LOC Agreements”) with DKBK Enterprises, LLC (“DKBK”) and CorLyst, LLC (“CorLyst”, and, together with DKBK, collectively, “Lenders”), both related parties, which provide a revolving commitment of up to $700,000 each ($1.4 million total). Under the LOC Agreements, all funds borrowed bear interest at an annual rate of 8%. The promissory notes issued in connection with the LOC Agreements provide that the Lenders have the right to convert all or any portion of the principal and accrued and unpaid interest into our common stock on the same terms as our 2019 Senior Convertible Notes. Therefore, the Lenders may convert the outstanding debt under the LOC Agreements into our common stock at a conversion price equal to the lower of (i) $14.28 per share, (ii) a price per share equal to a 10% discount to the pre-money valuation of an equity sale of the Company’s common stock for cash, or (iii) at an adjusted price; all as more particularly described in the 2019 Senior Convertible Notes.

Our Chief Executive Officer (“CEO”) is also the CEO and Managing Member of both Lenders. DKBK directly holds 16,166 shares of Processa common stock and CorLyst beneficially owns 1,095,649 shares of our common stock.

In April and June 2020, we drew a total of $500,000 under the LOC Agreement with DKBK. On July 21, 2020, we drew an additional $200,000, bringing the total amount drawn under the LOC Agreement with DKBK to $700,000. We have not drawn any funds under the LOC Agreement with CorLyst. See “Transactions with Related Persons, Promoters and Certain Control Persons.”

DKBK has informed us that they will convert the $700,000 principal amount and related accrued interest outstanding under the LOC Agreement with DKBK simultaneously with the closing of this offering into 92,574 shares of common stock. This assumes a conversion price of $7.61 per share, which, pursuant to the LOC Agreement, is a 10% discount on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020.

~~Yuhan Investments in Our Company~~

On July 14, 2020, we executed a non-binding indication of interest with Yuhan USA, a subsidiary of Yuhan. Pursuant to the non-binding indication of interest, Yuhan USA expressed its intent to purchase up to $3.0 million of our common stock in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, Yuhan USA may determine to purchase more, fewer or no shares in this offering.

The non-binding indication of interest with Yuhan USA is not a legally binding agreement and may be terminated or changed at any time. Accordingly, there can be no assurance that Yuhan USA will actually purchase any shares in this offering.

As consideration for the Yuhan License Agreement described above, we issued to Yuhan 250,000 shares of common stock (based upon an $8.00 per share price), subject to adjustment based on the offering price in this offering (but not less than 181,818 shares).

~~Payroll Protection Program Loan~~

In May 2020, we entered into a promissory note in favor of the Bank of America under the Small Business Administration Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”), for a $162,459 loan (“the PPP Loan”). We have used the loan proceeds for covered payroll costs in accordance with the relevant terms and conditions of the CARES Act. We anticipate the PPP Loan will be forgiven, in whole or in part, pursuant to its terms.

~~Reduction in our Authorized Shares~~

On June 25, 2020, we amended our Certificate of Incorporation reducing the number of authorized shares of our common stock from 100,000,000 to 30,000,000. We believe 100,000,000 authorized shares of common stock was disproportionately large in relation to the Company’s outstanding common stock and our anticipated future needs, and the reduction will reduce our future Delaware franchise tax.

~~Update on COVID-19 Impact~~

The COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world. The extent to which the coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

At present, we have experienced delays from COVID-19 on our business and operations. Although enrolment and treatment of patients in our Phase 2A trial has been completed, we have not been able to visit the clinical sites to close out the study and write the final report. In order to prioritize patient health and that of the investigators at clinical trial sites, enrollment of new patients in our planned clinical trials will be dependent on many factors, including the progression of the pandemic and its impact on patients and the investigators at clinical trial sites. Furthermore, our ability to initiate our planned clinical trials will require collaboration with and permission from each of the clinical trial sites. Over the coming weeks and months, we will continue to carefully monitor the situation with respect to each of our planned clinical trials and follow guidance from local and federal health authorities.

~~-4-~~

~~Risks Associated with our Business and Related to this Offering~~

We are a clinical stage biopharmaceutical company with limited operating history. We do not have any drug candidates approved for sale and have not yet generated any revenue from drug sales. We expect to continue to incur significant expenses, operating losses and negative cash flows from operations for the foreseeable future. Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus. These risks include, but are not limited to the following:

	●	~~We have a history of losses and we may never become profitable;~~

	●	~~We have limited cash resources and will require additional financing;~~

	●	~~The ongoing COVID-19 pandemic may disrupt our operations and affect our ability to successfully conduct clinical studies and raise capital;~~

	●	~~We currently do not have, and may never develop, any FDA-approved, licensed or commercialized products;~~

	●	We depend entirely on the successful development of our product candidates, which have not yet demonstrated efficacy for their target indications in clinical trials. We may never be able to demonstrate efficacy for our product candidates, thus preventing us from licensing, obtaining marketing approval by any regulatory agency, and/or commercializing our product(s);

	●	We have little corporate history of conducting clinical trials. Our planned clinical trials or those of our collaborators may reveal significant adverse events, toxicities or other side effects not seen in our preclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates;

	●	We depend on rights to certain pharmaceutical compounds that are or will be licensed to us. We do not own the intellectual property rights to these pharmaceutical compounds and any loss of our rights to them could prevent us from selling our products;

	●	~~We cannot ensure protection of our licensed intellectual property rights;~~

	●	~~Our product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts;~~

	●	We have identified material weaknesses in our internal control over financial reporting related to our control environment, which in turn results in a material weakness in our disclosure controls. If we do not remediate the material weaknesses in our internal control over financial reporting, or if we fail to establish and maintain effective internal control, we may not be able to accurately report our financial results, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our stock;

	●	~~If you purchase shares of common stock in this offering, you will suffer substantial and immediate dilution of your investment; and~~

	●	~~Our common stock price is expected to be volatile.~~

~~Corporate Information~~

Our principal executive offices are located at 7380 Coca Cola Drive, Suite 106, Hanover, Maryland 21076. Our telephone number is (443) 776-3133. Our website is www.processapharmaceuticals.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this prospectus or any other report or document we file with or furnish to the U.S. Securities and Exchange Commission (the “SEC”). We have included our website address in this prospectus solely as an inactive textual reference. Investors should not rely on any such information in deciding whether to purchase our common stock.

~~-5-~~

~~The Offering~~

~~Common Stock Offered by Us~~		~~2,150,000~~ ~~shares of common stock (or 2,472,500 shares if the underwriters exercise their option to purchase additional shares in full).~~

Common Stock to be Outstanding After this Offering*		~~7,665,447 shares (or 7,987,947 shares if the underwriters exercise their option to purchase additional shares in full).~~ ~~We have assumed a public offering price of $8.45, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020.~~

~~Use of Proceeds~~		~~We intend to use the net proceeds from this offering over the next 18-24 months to conduct clinical trials and for working capital and other general corporate purposes. See the section titled “Use of Proceeds” for more information.~~

~~Risk Factors~~		You should read the “Risk Factors” section of this prospectus beginning on page 10 and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

~~Proposed Nasdaq Capital Market Symbol~~		Our common stock is currently quoted on the OTCQB Market under the symbol “PCSA.” We have applied to list our common stock on the Nasdaq Capital Market under the symbol “PCSA” and our common stock has been approved for listing contingent on the completion of this offering. There can be no assurance that this offering will be completed, or as to the terms of this offering.

~~-6-~~

* The number of shares of our common stock to be outstanding after this offering is based on 5,515,447 shares of common stock outstanding as of August 31, 2020 and excludes the following:

	●	121,557 shares of our common stock issuable upon the exercise of outstanding stock options issued under the Processa Pharmaceuticals, Inc. 2019 Omnibus Incentive Plan, referred to herein as the Omnibus Plan, having a weighted-average exercise price of $17.24 per share, of which 37,009 options have vested, having a weighted-average exercise price of $17.49 per share. An additional 34,652 options will vest upon the successful completion of this offering;

	●	324,360 shares of our common stock granted on August 5, 2020 to employees and directors as restricted stock awards under the Omnibus Plan of which restricted stock awards for 214,078 shares of common stock vest upon the successful completion of this offering, with the remaining 110,282 shares of common stock vesting over two years;

	●	~~54,083 shares of common stock reserved for issuance pursuant to future awards under the Omnibus Plan;~~

	●	47,772 shares of our common stock issuable upon the exercise of outstanding non-qualified stock options granted to our Chief Financial Officer on September 1, 2018, having an exercise price of $19.88 per share, of which 25,172 shares have vested;

	●	~~533,959 shares of common stock issuable upon exercise of the outstanding and exercisable stock purchase warrants having a weighted average exercise price of $18.35 per share;~~

	●	113,013 shares of common stock issuable upon the conversion of $805,000 principal amount of outstanding 2019 Senior Convertible Notes and related accrued interest, based on a conversion price of $7.61 per share, which, pursuant to the 2019 Senior Note Agreement, is a 10% discount on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020.

	●	176,366 shares of common stock to be issued to stockholders who purchased common stock units in our 2018 Private Placement Transactions, based on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020, as a result of full ratchet anti-dilution provisions;

	●	92,574 shares of common stock issuable upon the assumed conversion of the $700,000 principal amount outstanding under the LOC Agreement with DKBK expected to occur simultaneously with the closing of this offering, based on a conversion price of $7.61 per share, which, pursuant to the LOC Agreement, is a 10% discount on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020;

	●	295,858 shares of common stock to satisfy the in-license obligation due to Aposense on closing of the offering and up-listing of our common stock to a national exchange, based on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020;

	●	236,686 shares of common stock issued to Yuhan in connection with the Yuhan License Agreement, based on an assumed offering price of $8.45 per share price, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020, subject to adjustment based on the offering price in this offering (but not less than 181,818 shares); and

	●	500,000 shares of common stock to be issued to Elion in connection with the Elion License Agreement on closing of the offering and up-listing of our common stock to a national exchange, based on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020.

* Unless otherwise indicated, all information in this prospectus:

	●	~~assumes~~ ~~no exercise by the underwriters of their option to purchase additional shares of common stock in this offering; and~~

	●	~~gives effect to the Reverse Split.~~

~~-7-~~

~~SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA~~

~~The following tables summarize our historical consolidated financial data for the periods and as of the dates indicated.~~

We have derived the following summary historical consolidated financial data for the years ended December 31, 2019 and 2018 from our audited consolidated financial statements appearing elsewhere in this prospectus. The summary historical consolidated financial data as of June 30, 2020 and for the six months ended June 30, 2020 and 2019 have been derived from our unaudited condensed consolidated financial statements appearing elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future.

You should read the following summary consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

Six Months Ended June 30,
Year Ended December 31,
2020 2019 2019 2018
Operating expenses
Research and development $ 928,855 $ 1,211,655 $ 2,320,573 $ 3,085,317
General and administrative 859,255 807,837 1,614,909 1,439,623

Operating loss (1,788,110 ) (2,019,492 ) (3,935,482 ) (4,524,940 )

Other income (expense)
Interest income 846 9,383 11,548 18,297
Interest expense (36,450 ) (10,702 ) (36,658 ) (161,205 )

Net operating loss before income tax benefit (1,823,714 ) (2,020,811 ) (3,960,592 ) (4,667,848 )
Income tax benefit 215,964 300,901 602,716 902,801

Net loss and comprehensive loss $ (1,607,750 ) $ (1,719,910 ) $ (3,357,876 ) $ (3,765,047 )

Net loss per share attributable to common stockholders - basic and diluted $ (0.29 ) $ (0.31 ) $ (0.70 ) $ (0.71 )
Weighted average common stock outstanding - basic and diluted 5,515,447 5,525,009 5,525,635 5,332,141
~~-8-~~
As of June 30, 2020
Actual Pro Forma ⁽¹⁾ Pro Forma, As Adjusted ⁽²⁾
Balance Sheet Data:
Cash and cash equivalents $ 452,654 $ 552,654
Total Assets 10,011,456 10,111,456
Working Capital (Deficit) ⁽³⁾ (1,321,086 )
(717,063
)

2019 Senior convertible debt ⁽⁴⁾ 859,102 859,102
Line of Credit Payable 504,023 -
Total Liabilities ⁽⁵⁾ 3,418,436 2,914,413
Total Stockholders’ Equity 6,593,020 7,197,043
~~(1)~~
The pro forma consolidated balance sheet data gives effect to the following adjustments, referred to herein as the “Pro Forma Adjustments,” certain of which are based on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020: (i) the issuance of 176,366 shares of common stock to stockholders who purchased common stock units in our 2018 Private Placement Transactions as a result of full ratchet anti-dilution provisions; (ii) the assumed conversion of the $700,000 principal amount outstanding under the LOC Agreement with DKBK expected to occur simultaneously with the closing of this offering into 92,574 shares of common stock; (iii) the issuance of 295,858 shares of common stock to Aposense; (iv) the issuance of 236,686 shares of common stock to Yuhan; and (v) the issuance of 500,000 shares of common stock and payment of $100,000 to Elion. The number of shares of common stock outstanding after giving effect to the Pro Forma Adjustments would be 6,816,931.
~~(2)~~ Assumes the Pro Forma Adjustments and further gives effect to the issuance of 2,150,000 shares of common stock in this offering and the receipt of $        in net proceeds. The number of outstanding shares on a pro forma as adjusted basis would be                   .
~~(3)~~ ~~We define working capital as current assets less current liabilities.~~
~~(4)~~ ~~Includes accrued interest totaling $54,459 and a discount of $357.~~
~~(5)~~
~~Our total liabilities at June 30, 2020 include a net deferred tax liability related to our acquisition of the license agreement for PCS499 from CoNCERT Pharmaceuticals, Inc. totaling $1,315,666.~~
~~-9-~~
~~RISK FACTORS~~
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, the section of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business operations. If any of the following risks occur, our business, operating results and prospects could be materially harmed. In that event, the price of our common stock could decline, and you could lose part or all of your investment.
~~Risks Related to Our Financial Position and Need for Capital~~
~~We have a history of losses and we may never become profitable.~~
We are a clinical stage biopharmaceutical company with a limited operating history. Processa itself as an organization has never had a drug approved by the FDA or any regulatory agency. The likelihood of success of our business plan must be considered in light of the challenges, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate. Biopharmaceutical product development is a highly speculative undertaking, involves a substantial degree of risk, and is a capital-intensive business. If we cannot successfully execute our plan to develop our pipeline of drug(s), our business may not succeed.
Since inception, we have incurred significant operating losses. Our net losses were $3.4 million for the year ended December 31, 2019 and $1.6 million for the six months ended June 30, 2020. As of June 30, 2020, we had an accumulated deficit of $12.6 million. To date, we have financed our operations with the proceeds raised from accredited investors in private transactions. We have devoted substantially all of our financial resources and efforts to research and development. We will incur additional losses as we continue our research and development activities, seek regulatory approvals for our product candidates, engage in clinical trials and expand our product portfolio. These losses will cause, among other things, our stockholders’ equity and working capital to decrease. Any future earnings and cash flow from operations of our business are dependent on our ability to further develop our products and on revenues and profitability from sales of products or successful joint venture relationships.
There can be no assurance that we will be able to generate sufficient product revenue to become profitable at all or on a sustained basis. Even if we generate revenues, we expect to have quarter-to-quarter fluctuations in revenues and expenses, some of which could be significant, due to research, development, clinical trial, and marketing and manufacturing expenses and activities. We also expect to incur substantial expenses without corresponding revenues, unless and until we are able to obtain regulatory approval and successfully license or commercialize our product candidates. If our product candidates fail in clinical trials or do not gain regulatory approval, or if our products do not achieve market acceptance, we may never become profitable.
We may never be able to obtain regulatory approval for the marketing of our product candidates in any indication in the United States or internationally. As we commercialize and market products, we will need to incur expenses for product marketing and brand awareness and conduct significant research, development, testing and regulatory compliance activities that, together with general and administrative expenses, could result in substantial operating losses for the foreseeable future. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our stock price may decline, and you may lose all or a substantial part of your investment in us.
~~We have limited cash resources and will require additional financing.~~
We will require substantial additional capital in the future to further our development and license our current and any additional products. We have historically relied upon private investments to fund our operations. Delays in obtaining additional funding could adversely affect our ability to move forward with additional studies or in licensing activities.
~~-10-~~
Since inception, we have not generated any revenue, have incurred net losses, have used net cash in our operations and have funded our business and operations primarily through proceeds from the private placement of equity securities and senior secured convertible notes. We expect to continue to require significant future financing to fund our operating activities and to use cash in operating activities for the foreseeable future as we continue our research and development activities to develop products that can be commercialized to generate revenue. Our ability to obtain additional financing will be subject to many factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates, restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us.
We have not had any revenue since our inception, and we do not currently have any revenue under contract or any immediate sales prospects. As part of our effort to conserve cash, beginning on August 1, 2019 we have also delayed some of our cash outflows, primarily through the deferred payment of salaries ($210,800 has been included as accrued expenses at June 30, 2020) until such time as we have raised sufficient funding.
We may seek additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. Debt, receivables and royalty financings may be coupled with an equity component, such as warrants to purchase stock, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates or grant licenses on terms that are not favorable to us.
~~Substantial doubt exists about our ability to continue as a going concern.~~
Substantial doubt exists about our ability to continue as a going concern as of the date hereof and our auditors included a going concern paragraph in their Report of Independent Registered Public Accounting Firm accompanying our audited financial statements for the year ended December 31, 2019. Our December 31, 2019 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.
~~The ongoing COVID-19 pandemic may disrupt our operations and affect our ability to successfully conduct clinical studies and raise capital.~~
In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in the financial and capital markets. We are unable to accurately predict the full impact that the ongoing COVID-19 pandemic will have on our results from operations, financial condition, and scientific and clinical activities due to numerous factors that are not within our control, including the duration and severity of the outbreak, stay-at-home orders, business closures, travel restrictions, supply chain disruptions and employee illness or quarantines, which could result in disruptions to our operations and adversely impact our results from operations and financial condition. In addition, the COVID-19 pandemic has resulted in ongoing volatility in the financial and capital markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets relating to the COVID-19 pandemic, our operations and financial condition could be adversely impacted. In addition, we have experienced delays in completing the closeout of our Phase 2A clinical trial for PCS499 and any future delays would delay our drug development process.
Raising additional capital may cause dilution to our existing stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technology or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of private and public equity financings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt, receivables and royalty financings may be coupled with an equity component, such as warrants to purchase stock, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates or grant licenses on terms that are not favorable to us.
~~-11-~~
~~We have a significant amount of intangible assets related to our acquisition of PCS499 recorded on our balance sheet which may lead to potentially significant impairment charges in the future.~~
We review long-lived assets, including intangible assets, for impairment whenever events or changes in estimates and circumstances indicate that the related carrying amounts may not be recoverable based on the existence of certain triggering events. Intangible assets are also subject to an impairment assessment at least annually. The amount of identifiable intangible assets in our consolidated balance sheet is related to our acquisition of PCS499 and our right of use assets. At June 30, 2020, intangible assets recorded on our consolidated balance sheet was $9.4 million.
~~We have incurred indebtedness under the CARES Act, which will be subject to review, may not be forgivable in whole or in part and may eventually have to be repaid.~~
We received funds under the Paycheck Protection Program in May 2020 in the amount of $162,459, serviced by the Bank of America. The application for these funds requires us to, in good faith, certify that the current economic uncertainty made the loan request necessary to support our ongoing operations. This certification further requires us to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on us having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.
Under the terms of the CARES Act and the corresponding promissory note, the use of the proceeds of the loan is restricted to payroll costs (as defined in the CARES Act), covered rent, covered utility payments and certain other expenditures that, while permitted, would not result in forgiveness of a corresponding portion of the loan. Following recent amendments to the Paycheck Protection Program, after an eight- or twenty-four-week period starting with the disbursement of the loan proceeds, we may apply for forgiveness of some or all of the loan, with the amount which may be forgiven equal to the sum of eligible payroll costs, mortgage interest (not applicable to us), covered rent, and covered utility payments, in each case incurred by us during the eight- or twenty-four-week period following the date of first disbursement. Certain reductions in our payroll costs or full-time equivalent employees (when compared against the applicable measurement period) may reduce the amount of the Loan eligible for forgiveness. The Payroll Protection Program has been amended twice with the latest series of amendments significantly altering the timeline associated with the Payroll Protection Program spending and loan forgiveness. While we believe we have acted in good faith and has complied with all requirements of the Payroll Protection Program, if Treasury or SBA determined that our loan application was not made in good faith or that the we did not otherwise meet the eligibility requirements of the Payroll Protection Program, we may not receive forgiveness of the loan (in whole or in part) and we could be required to return the loan or a portion thereof. Further, there is no guarantee that we will receive forgiveness for any amount and forgiveness will be subject to review by our bank of information and documentation that we submit, as required by SBA and the lender.
~~Risks Relating to Clinical Development and Commercialization of Our Product Candidates~~
~~We currently do not have, and may never develop, any FDA-approved, licensed or commercialized products.~~
We have not yet sought to obtain any regulatory approvals for any product candidates in the United States or in any foreign market. For us to develop any products that might be licensed or commercialized, we will have to invest further time and capital in research and product development, regulatory compliance and market development. Therefore, we and our licensor(s), prospective business partners and other collaborators may never develop any products that can be licensed or commercialized. All of our development efforts will require substantial additional funding, none of which may result in any revenue.
~~Our licenses are subject to termination by the licensor in certain circumstances.~~
Our rights to practice the inventions claimed in the licensed patents and patent applications are subject to our licensors abiding by the terms of those licenses and not terminating them. Our licenses may be terminated by the licensor if we are in material breach of certain terms or conditions of the license agreement or in certain other circumstances. Our license agreements each include provisions that allow the licensor to terminate the license if (i) we breach any payment obligation or other material provision under the agreement and fail to cure the breach within a fixed time following written notice of termination, (ii) we or any of our affiliates, licensees or sublicensees directly or indirectly challenge the validity, enforceability, or extension of any of the licensed patents, or (iii) we declare bankruptcy or dissolve. The majority of license agreements require us to satisfy due diligence milestones that relate to the development of new products containing the licensed drug or the agreement may be terminated by such counterparty. In addition, the grant of the Aposense license and the Elion license are contingent on our ability to successfully complete this offering and up-list to Nasdaq or they will not take effect. Our rights under theses licenses are subject to our continued compliance with the terms of the license, including the payment of royalties due under the license. Termination of any of these licenses could prevent us from marketing some or all of our products. Because of the complexity of our products and the patents we have licensed, determining the scope of the license and related royalty obligations can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor might attempt to revoke the license. If such an attempt were successful, we might be barred from producing and selling some or all of our products.
We depend entirely on the successful development of our product candidates, which have not yet demonstrated efficacy for their target indications in clinical trials. We may never be able to demonstrate efficacy for our product candidates, thus preventing us from licensing, obtaining marketing approval by any regulatory agency, and/or commercializing our product(s).
Our product candidates are either in the early stages of clinical development or late stages of preclinical development. Significant additional research and development activity and clinical testing are required before we will have a chance to achieve a viable product for licensing or commercialization from such candidates. Our research and development efforts remain subject to all the risks associated with the development of new biopharmaceutical products and treatments. Development of the underlying technology may be affected by unanticipated technical or other problems, among other research and development issues, and the possible insufficiency of funds needed in order to complete development of these product candidates. Safety, regulatory and efficacy issues, clinical hurdles or other challenges may result in delays and cause us to incur additional expenses that would increase our losses. If we and our collaborators cannot complete, or if we experience significant delays in developing, our potential therapeutics or products for use in potential commercial applications, particularly after incurring significant expenditures, our business may fail, and investors may lose the entirety of their investment.
When we submit an IND or foreign equivalent to the FDA or international regulatory authorities seeking approval to initiate clinical trials in the United States and other countries, we may not be successful in obtaining acceptance from the FDA or comparable foreign regulatory authorities to start our clinical trials. If we do not obtain such acceptance, the time in which we expect to commence clinical programs for any product candidate will be extended and such extension will increase our expenses and increase our need for additional capital. Moreover, there is no guarantee that our clinical trials will be successful or that we will continue clinical development in support of an approval from the FDA or comparable foreign regulatory authorities for any indication. We note that most drug candidates never reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval. Therefore, our business currently depends entirely on the successful development, regulatory approval, and licensing or commercialization of our product candidates, which may never occur.
~~We must successfully complete clinical trials for our product candidates before we can apply for marketing approval.~~
Even if we complete our clinical trials, it does not assure marketing approval. Our clinical trials may be unsuccessful, which would materially harm our business. Even if our initial clinical trials are successful, we are required to conduct additional clinical trials to establish our product candidates’ safety and efficacy, before submitting an NDA. Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in early phases of pre-clinical and clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates. The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country.
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We are not permitted to market our product candidates as prescription pharmaceutical products in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approval from such countries.
We have little corporate history of conducting clinical trials. Our planned clinical trials or those of our collaborators may reveal significant adverse events, toxicities or other side effects not seen in our preclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.
Our operations to date have been limited to financing and staffing, conducting research and developing our core technologies, identifying and optimizing our lead product clinical candidates, performing due diligence on other potential drug in-licensing opportunities, receiving FDA orphan designation on PCS499 in Necrobiosis Lipoidica (NL), improving the manufacturing of PCS499 final product, receiving FDA IND clearance on one indication, conducting a healthy human volunteer trial and presently completing a Phase 2A clinical trial in patients with NL. Although we have recruited a team that has experience with clinical trials in the United States and outside the United States, as a company, we have only conducted two clinical trials in any jurisdiction and have not had previous experience commercializing product candidates through the FDA or similar submissions to initiate clinical trials or obtain marketing authorization to foreign regulatory authorities. We cannot be certain that other planned clinical trials will begin or be completed on time, if at all; that our development program and studies would be acceptable to the FDA or other regulatory authorities; or that, if regulatory approval is obtained, our product candidates can be successfully commercialized. Clinical trials and commercializing our product candidates will require significant additional financial and management resources, and reliance on third-party clinical investigators, contract research organizations (“CROs”), consultants and collaborators. Relying on third-party clinical investigators, CROs or collaborators may result in delays that are outside of our control.
Furthermore, we may not have the financial resources to continue development of, or to enter into collaborations for, a product candidate if we experience any problems or other unforeseen events that delay or prevent regulatory approval of, or our ability to commercialize, product candidates.
Through our IND, we are currently evaluating the safety tolerability of PCS499 in patients with NL. We have developed dosing based on our past experience with the drug in a healthy human volunteer study, the experience of CoNCERT Pharmaceuticals in healthy human volunteers and patients with diabetic nephropathy studies, and the preclinical toxicology data and studies involving diabetic nephropathy patients. However, we do not know if the dosing will be safe and tolerated in patients with NL. Preliminary data from the Phase 2A appears to demonstrate that PCS499 at 1,800 mg/day was generally well tolerated. However, since the number of patients in this study was small, the risks associated with giving PCS499 still exists. Given NL patients are mainly women and multiple pathophysiological changes have occurred in their body from the NL, the NL patients could be more sensitive to the drug, thus decreasing their ability to tolerate PCS499. If this occurs, there may not be any way to differentiate PCS499 from PTX thus making development and commercialization of PCS499 in NL not worth pursuing.
~~-13-~~
~~Some preclinical~~studies of our product candidates have been completed, but we do not know the predictive value of these studies for our targeted population of patients, and we cannot guarantee that any positive results in preclinical studies will translate successfully to our targeted population of patients. It is not uncommon to observe results in human clinical trials that are unexpected based on preclinical testing, and many product candidates fail in clinical trials despite promising preclinical results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products. Human patients in clinical trials may suffer significant adverse events or other side effects not observed in our preclinical studies, including, but not limited to, immunogenic responses, organ toxicities such as liver, heart or kidney or other tolerability issues or possibly even death. The observed potency and kinetics of our planned product candidates in preclinical studies may not be observed in human clinical trials. If clinical trials of our planned product candidates fail to demonstrate efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our planned product candidates which may result in complete loss of expenditures which we devote to those products.
We may have difficulty recruiting patients to the clinical trial, patients may drop out of our trial, or we may be required to abandon the trial or our development efforts of that product candidate altogether. We, the FDA, an Institutional Review Board (“IRB”), or other applicable regulatory authorities may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage studies have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the drug from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition, and prospects.
Further, if any of our product candidates obtains marketing approval, toxicities associated with our product candidates may also develop after such approval and lead to a requirement to conduct additional clinical safety trials, additional warnings being added to the labeling, significant restrictions on the use of the product or the withdrawal of the product from the market. We cannot predict whether our product candidates will cause toxicities in humans that would preclude or lead to the revocation of regulatory approval based on preclinical studies or early stage clinical testing. However, any such event, were it to occur, would cause substantial harm to our business and financial condition and would result in the diversion of our management’s attention.
Even if we receive regulatory approval for any of our product candidates, we may not be able to successfully license or commercialize the product and the revenue that we generate from its sales, if any, may be limited.
If approved for marketing, the commercial success of our product candidates will depend upon each product’s acceptance by the medical community (including physicians, patients and health care payors) and the potential competitive products available to the patients upon commercialization. The degree of market acceptance for any of our product candidates will depend on a number of factors, including:
● ~~demonstration of clinical safety and efficacy;~~
● ~~relative convenience, dosing burden and ease of administration;~~
● ~~the prevalence and severity of any adverse effects;~~
● ~~the willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies;~~
~~-14-~~
● ~~efficacy of our product candidates compared to competing products;~~
● ~~the introduction of any new products that may in the future become available targeting indications for which our product candidates may be approved;~~
● ~~new procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show utility;~~
● ~~pricing and cost-effectiveness;~~
● ~~the inclusion or omission of our product candidates in treatment guidelines;~~
● ~~the effectiveness of our own or any future collaborators’ sales and marketing strategies;~~
● ~~limitations or warnings contained in approved labeling from regulatory authorities;~~
● our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and
● ~~the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals.~~
If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
In addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render our product candidates not commercially viable.
We are completely dependent on third parties to manufacture our product candidates, and our commercialization of our product candidates could be halted, delayed or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of our product candidates or fail to do so at acceptable quality levels or prices.
In 2018, we incurred costs to establish a new site to contract manufacture the tablets of PCS499 needed for our clinical trial since the original CoNCERT tablet manufacturing site could no longer be used. Since PCS499 is a deuterated molecule requiring special facilities and chemicals for manufacturing, the manufacturing costs for PCS499 could result in the cost of goods being too high for the commercial price to be obtainable or too high to even manufacture the amount of drug needed to run the clinical studies prior to approval.
We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture the active pharmaceutical ingredient, or API, in our product candidates for use in our clinical trials or for commercial product. In addition, we do not have the capability to formulate any of our product candidates into a finished drug product for commercial distribution. As a result, we will be obligated to rely on contract manufacturers, if and when any of our product candidates are approved for commercialization. We have not entered into an agreement with any contract manufacturers for commercial supply and may not be able to engage a contract manufacturer for commercial supply of any of our product candidates on favorable terms to us, or at all.
~~-15-~~
The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or comparable foreign regulatory authorities pursuant to inspections that will be conducted after we submit an NDA or biologics license application to the FDA or their equivalents to other relevant regulatory authorities. We will not control the manufacturing process of, and will be completely dependent on, our contract manufacturing partners for compliance with cGMPs to manufacture both active drug substances and finished drug products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to our product candidates. If our contract manufacturers do not successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
Our contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. We will not have control over our contract manufacturers’ compliance with these regulations and standards. Failure by any of our contract manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market any of our product candidates, delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. In addition, we will not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our product candidates.
If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our API or finished products or should cease doing business with us, we could experience significant interruptions in the supply of any of our product candidates or may not be able to create a supply of our product candidates at all. Were we to encounter manufacturing issues, our ability to produce a sufficient supply of any of our product candidates might be negatively affected. Our inability to coordinate the efforts of our third-party manufacturing partners, or the lack of capacity available at our third-party manufacturing partners, could impair our ability to supply any of our product candidates at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk or finished product manufacturer, if we face these or other difficulties with our current manufacturing partners, we could experience significant interruptions in the supply of any of our product candidates if we decided to transfer the manufacture of any of our product candidates to one or more alternative manufacturers in an effort to deal with the difficulties.
Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally, we rely on third parties to supply the raw materials needed to manufacture our potential products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to a future contract manufacturer caused by problems at suppliers could delay shipment of any of our product candidates, increase our cost of goods sold and result in lost sales.
We cannot guarantee that our future manufacturing and supply partners will be able to reduce the costs of commercial scale manufacturing of any of our product candidates over time. If the commercial-scale manufacturing costs of any of our product candidates are higher than expected, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize output, we may not be able to reduce our costs over time.
~~-16-~~
~~Even if we obtain marketing approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.~~
Even if we obtain regulatory approval for any of our product candidates for an indication, the FDA or foreign equivalent may still impose significant restrictions on their indicated uses or marketing or the conditions of approval or impose ongoing requirements for potentially costly and time-consuming post-approval studies, including Phase 4 clinical trials, and post-market surveillance to monitor safety and efficacy. Our product candidates will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These requirements include registration with the FDA, as well as continued compliance with current Good Clinical Practices (cGCPs) for any clinical trials that we conduct post-approval. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations, requirements relating to quality control, quality assurance and corresponding maintenance of records and documents. Compliance with such regulations may result in significant costs and expenses.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials, as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
~~Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.~~
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
~~We could face competition from other biotechnology and pharmaceutical companies, and our operating results would suffer if we fail to innovate and compete effectively.~~
Our products are used for indications where we believe that there is an unmet medical need. If existing or newly approved drug products, whether approved by the FDA for the indication or not, are able to successfully treat the same patients, it may be more difficult to perform clinical studies, to develop our product and/or to commercialize our product, adversely affecting our business. Since the biopharmaceutical industry is characterized by intense competition and rapid innovation, our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results than our product candidates. Our competitors may include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as a larger research and development staff and experienced marketing and manufacturing organizations, established relationships with CROs and other collaborators, as well as established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates, or may develop proprietary technologies or secure patent protection and, in turn, exclude us from technologies that we may need for the development of our technologies and potential products.
~~-17-~~
Even if we obtain regulatory approval of any of our product candidates, we may not be the first to market and that may negatively affect the price or demand for our product candidates. Additionally, we may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances. Furthermore, for drugs that receive orphan drug designation at the FDA, a competitor could obtain orphan product approval from the FDA with respect to such competitor’s drug product. If such competitor drug product is determined to be the same product as one of our product candidates, we may be prevented from obtaining approval from the FDA for such product candidate for the same indication for seven years, except in limited circumstances, and we may be subject to similar restrictions under non-U.S. regulations.
We expect to rely on third parties to conduct clinical trials for our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize any of our product candidates and our business would be substantially harmed.
We expect to enter into agreements with third-party CROs to conduct and manage our clinical programs including contracting with clinical sites to perform our clinical studies. We plan to rely heavily on these parties for execution of clinical studies for our product candidates and will control only certain aspects of their activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs and clinical sites will not relieve us of our regulatory responsibilities. We and our CROs will be required to comply with cGCPs, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any products in clinical development. The FDA and its foreign equivalents enforce these cGCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA or other regulatory authorities will determine that any of our clinical trials comply with cGCPs. In addition, our clinical trials must be conducted with products produced under cGMP regulations and will require a large number of test subjects. Our failure or the failure of our CROs or clinical sites to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action up to and including civil and criminal penalties.
Although we intend to design the clinical trials for our product candidates in consultation with CROs, we expect that the CROs will manage all of the clinical trials conducted at contracted clinical sites. As a result, many important aspects of our drug development programs would be outside of our direct control. In addition, the CROs and clinical sites may not perform all of their obligations under arrangements with us or in compliance with regulatory requirements. If the CROs or clinical sites do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development and commercialization of any of our product candidates for the subject indication may be delayed or our development program materially and irreversibly harmed. We cannot control the amount and timing of resources these CROs and clinical sites will devote to our program or any of our product candidates. If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials, which could significantly delay commercialization and require significantly greater expenditures.
~~-18-~~
If any of our relationships with these third-party CROs or clinical sites terminate, we may not be able to enter into arrangements with alternative CROs or clinical sites. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any such clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for any of our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.
~~Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.~~
Clinical testing of drug product candidates is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early clinical trials may not be predictive of the results of later-stage clinical trials. We cannot assure you that the FDA or comparable foreign regulatory authorities will view the results as we do or that any future trials of any of our product candidates will achieve positive results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Any future clinical trial results for our product candidates may not be successful.
In addition, a number of factors could contribute to a lack of favorable safety and efficacy results for any of our product candidates. For example, such trials could result in increased variability due to varying site characteristics, such as local standards of care, differences in evaluation period and surgical technique, and due to varying patient characteristics including demographic factors and health status.
~~Even though we may apply for orphan drug designation for a product candidate, we may not be able to obtain orphan drug marketing exclusivity.~~
There is no guarantee that the FDA, EMA or their foreign equivalents will grant any future application for orphan drug designation for any of our product candidates, which would make us ineligible for the additional exclusivity and other benefits of orphan drug designation. Even where orphan drug designation or equivalent status is granted, there is no guarantee of orphan drug marketing exclusivity.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug available in the Unites States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of regulatory review and approval process. In addition to the potential period of exclusivity, orphan designation makes a company eligible for grant funding of up to $400,000 per year for four years to defray costs of clinical trial expenses, tax credits for clinical research expenses and potential exemption from the FDA application user fee.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product. If a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan drug exclusivity. While the FDA granted orphan-drug designation to PCS499 for the treatment of NL on June 18, 2018, there can be no assurance that we will receive orphan drug designation for any additional product candidates in the indications for which we think they might qualify, if we elect to seek such applications.
~~-19-~~
Although we may pursue expedited regulatory approval pathways for a product candidate, it may not qualify for expedited development or, if it does qualify for expedited development, it may not actually lead to a faster development, regulatory review or approval process.
Although we believe there may be an opportunity to accelerate the development of certain of our product candidates through one or more of the FDA’s expedited programs, such as fast track, breakthrough therapy, accelerated approval or priority review, we cannot be assured that any of our product candidates will qualify for such programs.
For example, a drug may be eligible for designation as a breakthrough therapy if the drug is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Although breakthrough designation or access to any other expedited program may expedite the development or approval process, it does not change the standards for approval. If we apply for an expedited program for our product candidates, the FDA may determine that our proposed target indication or other aspects of our clinical development plans do not qualify for such expedited program. Even if we are successful in obtaining access to an expedited program, we may not experience faster development timelines or achieve faster review or approval compared to conventional FDA procedures. Access to an expedited program may also be withdrawn by the FDA if it believes that the designation is no longer supported by data from our clinical development program. Additionally, qualification for any expedited review procedure does not ensure that we will ultimately obtain regulatory approval for such product candidate.
~~Third-party coverage and reimbursement, health care cost containment initiatives and treatment guidelines may constrain our future revenues.~~
Our ability to successfully market our product candidates will depend in part on the level of reimbursement that government health administration authorities, private health coverage insurers and other organizations provide for the cost of our products and related treatments. Countries in which any of our product candidates may be sold through reimbursement schemes under national health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and any subsequent price increases. In certain countries, including the United States, government-funded and private medical care plans can exert significant indirect pressure on prices. We may not be able to sell our product candidates profitably if adequate prices are not approved or coverage and reimbursement is unavailable or limited in scope.
~~Legal, regulatory and legislative changes with respect to reimbursement, pricing and contracting may adversely affect our business and future prospects.~~
Federal and state governments may adopt policies affecting drug pricing and contracting practices outside of the context of federal programs such as Medicare and Medicaid, which may adversely affect our business. For example, several states have adopted laws that require drug manufacturers to provide advance notice of certain price increase and to report information relating to those price increases. On May 11, 2018, the Department of Health and Human Services requested comments on a “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs,” which outlines a wide range of proposals and policy considerations intended to improve competition; lower patient out-of-pocket costs; enhance negotiation; and provide incentives for lower manufacturer list prices. Some of the proposals would require Congressional approval, while others could be adopted administratively. There can be no assurances that future changes to Medicare and/or Medicaid prescription drug reimbursement policies, drug pricing and contracting practices, or government drug price regulation programs such as the Medicaid Drug Rebate Program or 340B Drug Pricing Program will not have an adverse impact on our business and future prospects.
~~We may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.~~
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products and product candidates are designed to affect important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our product candidates could result in injury to a patient or even death. We cannot offer any assurance that we will not face product liability suits in the future, or that our insurance coverage will be sufficient to cover our liability under any such cases.
~~-20-~~
In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:
● ~~withdrawal of clinical trial participants;~~
● ~~termination of clinical trial sites or entire trial programs;~~
● ~~the inability to commercialize our product candidates;~~
● ~~decreased demand for our product candidates;~~
● ~~impairment of our business reputations;~~
● ~~product recall or withdrawal from the market or labeling, marketing or promotional restrictions;~~
● ~~substantial costs of any related litigation or similar disputes;~~
● ~~distractions of management’s attention and other resources from our primary business;~~
● ~~substantial monetary awards to patients or other claimants against us that may not be covered by insurance; or~~
● ~~loss of revenue.~~
We have obtained product liability insurance coverage for our clinical trials. However, large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects and our insurance coverage may not be sufficient to cover all of our product liability related expenses or losses and may not cover us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect us against losses due to product liability. We will need to increase our product liability coverage if any of our product candidates receive regulatory approval, which will be costly, and we may be unable to obtain this increased product liability insurance on commercially reasonable terms, or at all. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and could harm our business, financial condition, operating results and prospects.
If any of our product candidates are approved for marketing and we are found to have improperly promoted off-label uses, or if physicians misuse our products or use our products off-label, we may become subject to prohibitions on the sale or marketing of our products, product liability claims and significant fines, penalties and sanctions, and our brand and reputation could be harmed.
The FDA and other regulatory agencies strictly regulate the marketing and promotional claims that are made about drug products. In particular, a product may not be promoted for uses or indications that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling and comparative safety or efficacy claims cannot be made without direct comparative clinical data. If we are found to have promoted off-label uses of any of our product candidates, we may become subject to significant liability, which would materially harm our business. Both federal and state governments have levied large civil and criminal fines against companies for alleged improper promotion and have enjoined several companies from engaging in off-label promotion. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management’s attention could be diverted from our business operations, significant legal expenses could be incurred, and our brand and reputation could be damaged.
~~-21-~~
The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we are deemed by the FDA to have engaged in the promotion of our products for off-label use, we could be subject to FDA regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our business activities constitute promotion of an off-label use, which could result in significant penalties, including criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations.
We cannot, however, prevent a physician from using our product candidates outside of those indications for use when in the physician’s independent professional medical judgment he or she deems appropriate. Physicians may also misuse our product candidates or use improper techniques, potentially leading to adverse results, side effects or injury, which may lead to product liability claims. If our product candidates are misused or used with improper technique, we may become subject to costly litigation by physicians or their patients. Furthermore, the use of our product candidates for indications other than those cleared by the FDA may not effectively treat such conditions, which could harm our reputation among physicians and patients.
We may choose not to continue developing or commercializing any of our product candidates at any time during development or after approval, which would reduce or eliminate our potential return on investment for those product candidates.
At any time, we may decide to discontinue the development of any of our product candidates or not to continue commercializing one or more of our approved product candidates for a variety of reasons, including changes in our internal product, technology or indication focus, the appearance of new technologies that make our product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment, and we will have missed the opportunity to have allocated those resources to potentially more productive uses.
~~Risks Relating to Our Intellectual Property Rights~~
We depend on rights to certain pharmaceutical compounds that are or will be licensed to us. We do not own the intellectual property rights to these pharmaceutical compounds and any loss of our rights to them could prevent us from selling our products.
Within our present pipeline and potentially future pipeline of drugs, our drugs are in-licensed from other biotech or pharmaceutical companies. We do not currently own any intellectual property rights, including the patents that underlie these licenses. Our rights to use the pharmaceutical compounds we license are subject to the negotiation of, continuation of and compliance with the terms of those licenses. Thus, these patents and patent applications are not written by us or our attorneys, and we did not have control over the drafting and prosecution. The former patent owners and our licensors might not have given the same attention to the drafting and prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting. Moreover, under certain of our licenses, patent prosecution activities remain under the control of the licensor. We cannot be certain that drafting of the licensed patents and patent applications, or patent prosecution, by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.
Our current patent portfolio consists of the number of patents related to our drug candidates licensed from each third party licensor. In addition to the international patents and/or international and U.S. patent applications licensed from our third party licensors, we have licensed at least the following number of U.S. patents:
CoNCERT Yuhan Elion Aposense Akashi Total
U.S. patents 9 4 2 3 2 20
~~-22-~~
Significant additional research and development activity, pre-clinical testing, and/or clinical testing of our drug product candidates are required before we will have a chance to achieve a viable product for licensing or commercialization. Our business currently depends entirely on the successful development, regulatory approval, and licensing or commercialization of our product candidates, which may never occur.
Enforcement of our licensed patents or defense of any claims asserting invalidity of these patents is often subject to the control or cooperation of our licensors. Legal action could be initiated against the owners of the intellectual property that we license and an adverse outcome in such legal action could harm our business because it might prevent such companies or institutions from continuing to license intellectual property that we may need to operate our business. In addition, such licensors may resolve such litigation in a way that benefits them but adversely affects our ability to have freedom to operate to develop and commercialize our product candidates.
~~We cannot ensure protection of our licensed intellectual property rights.~~
Our commercial success will depend, in part, on the ability of our licensors to obtain and maintain patent protection for our licensed technologies, products and processes, successfully defend these licensed patents against third-party challenges and successfully enforce these patents against third party competitors. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of our licensed intellectual property rights. Accordingly, we cannot predict the breadth of claims that may be allowable or enforceable in our patents. The existing patents and patent applications relating to our drug product candidates may be challenged, invalidated or circumvented by third parties and might not protect us against competitors with similar products or technologies.
The degree of future protection for our proprietary rights is uncertain. We may not be able to adequately protect our rights, gain or keep our competitive advantage, or provide any competitive advantage at all. For example, others have filed, and in the future are likely to file, patent applications covering products and technologies that are similar, identical or competitive to any of our product candidates, or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications licensed or filed by us, or that our licensed intellectual property or intellectual property that we develop in the future will not be involved in interference, opposition or invalidity proceedings before United States or foreign patent offices.
~~-23-~~
In the future, we may rely on know-how and trade secrets to protect technology, especially in cases when we believe patent protection is not appropriate or obtainable. However, know-how and trade secrets are difficult to protect. While we intend to require employees, academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to publish data and information in which we may also have rights. If we cannot maintain the confidentiality of our licensed or owned proprietary technology and other confidential information, our ability to protect valuable information licensed or owned by us may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of our licensed or owned know-how and trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
If we fail to obtain or maintain patent or trade secret protection for our product candidates or our technologies, third parties could use our licensed or owned intellectual property, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.
We may also rely on the trademarks we may develop to distinguish our products from the products of our competitors. We cannot guarantee that any trademark applications filed by our licensors, us, or our business partners will be approved. Third parties may also oppose such trademark applications, or otherwise challenge our use of the trademarks. In the event that the trademarks we use are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot provide assurance that competitors will not infringe the trademarks we use, or that we, our licensors, or business partners will have adequate resources to enforce these trademarks.
~~Our product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.~~
Our success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third-party patent rights that may be relevant to our licensed technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization of any of our licensed product candidates or any future product candidate. There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop or commercialize any of our product candidates, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming and may divert the time and attention of our technical personnel and management.
Third parties may hold proprietary rights that could prevent any of our licensed product candidates from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities relating to any of our product candidates or our processes could subject us to potential liability for damages and require us to obtain a license and pay royalties to continue to manufacture or market any of our product candidates or any future product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign our product candidates or any future product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing any of our product candidates or a future product candidate, which could harm our business, financial condition and operating results.
~~-24-~~
A number of companies, including several major pharmaceutical companies, have conducted, or are conducting, research within the licensed fields in which we intend to operate, which has resulted, or may result, in the filing of many patent applications related to this research. If we were to challenge the validity of these or any issued United States patent in court, we would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. If we were to challenge the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the United States Patent and Trademark Office, we would have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability.
~~General Company-Related Risks~~
~~We will need to grow the size of our organization, and we may experience difficulties in managing this growth.~~
We anticipate having a total of 15-20 full-time or part-time employees or consultants. As our development and commercialization plans and strategies develop, we may need to expand the size of our employee and consultant/contractor base. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, our management may have to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:
● ~~manage all our development efforts effectively, especially our clinical trials;~~
● ~~integrate additional management, administrative, scientific, operation and regulatory personnel;~~
● ~~maintain sufficient administrative, accounting and management information systems and controls; and~~
● ~~hire and train additional qualified personnel.~~
~~We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results.~~
~~-25-~~
We have identified material weaknesses in our internal control over financial reporting related to our control environment, which in turn results in a material weakness in our disclosure controls. If we do not remediate the material weaknesses in our internal control over financial reporting, or if we fail to establish and maintain effective internal control, we may not be able to accurately report our financial results, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our stock.
We identified a material weakness in our internal control over financial reporting. Our assessment has indicated we have material weaknesses related to certain entity level controls; inadequate segregations of duties throughout the entire year; and our formal documentation of certain policies and procedures, their related controls, and the operation thereof. Such a material weakness in our internal controls results in a material weakness in our disclosure controls. We continue to remediate our material weakness and to improve our internal controls and are in the process of implementing more fully documented formal policies and procedures.
A “material weakness” is a deficiency, or a combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected. We cannot assure you that additional material weaknesses in our internal controls will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our financial statements. These misstatements could result in restatements of our financial statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported financial information. Our inability to implement an effective internal control system in the future to prevent and/or detect and correct material misstatements could have a material and adverse effect on our financial condition.
However, while we remain a smaller reporting company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 of the Sarbanes-Oxley Act within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404 of the Sarbanes-Oxley Act. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
We have already and are planning to implement additional measures to address the material weaknesses we have identified, including hiring additional accounting personnel or consultants with appropriate expertise. We intend to complete the implementation of our remediation plan in 2021. However, we cannot assure you that we will be successful in remediating the material weaknesses we identified or that our internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.
~~-26-~~
We cannot assure you that management will be successful in identifying and retaining appropriate personnel; that newly engaged staff or outside consultants will be successful in identifying material weaknesses in the future; or that appropriate personnel will be identified and retained prior to these deficiencies resulting in material and adverse effects on our business.
Any failure to remediate the material weaknesses we identified or develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to remediate the material weaknesses we identified or implement and maintain effective internal control over financial reporting, as well as disclosure controls and procedures, could also adversely affect the results of management reports and independent registered public accounting firm audits of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures, and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our common stock.
~~Our limited operating history may make it difficult to evaluate our business and our future viability.~~
We are in the relatively early stages of operations and development and have only a limited operating history as the existing entity on which to base an evaluation of our business and prospects. Even if we successfully obtain additional funding, we are subject to the risks associated with early stage companies with a limited operating history, including: the need for additional financings; the uncertainty of research and development efforts resulting in successful commercial products, as well as the marketing and customer acceptance of such products; unexpected issues with the FDA, other federal or state regulatory authorities or ex-US regulatory authorities; regulatory setbacks and delays; competition from larger organizations; reliance on the proprietary technology of others; dependence on key personnel; uncertain patent protection; fluctuations in expenses; and dependence on corporate partners and collaborators. Any failure to successfully address these risks and uncertainties could seriously harm our business and prospects. We may not succeed given the technological, marketing, strategic and competitive challenges we will face. The likelihood of our success must be considered in light of the expenses, difficulties, complications, problems and delays frequently encountered in connection with the growth of a new business, the continuing development of new drug technology, and the competitive and regulatory environment in which we operate or may choose to operate in the future.
If we lose key management personnel, or if we fail to recruit additional highly skilled personnel, our ability to identify and develop new or next generation product candidates will be impaired, could result in loss of markets or market share and could make us less competitive.
We are highly dependent upon the principal members of our small management team and staff, including David Young, Pharm.D., Ph.D, our Chief Executive Officer, and Sian Bigora, Pharm.D., our Chief Development Officer. The employment of Drs. Young and Bigora may be terminated at any time by either us or Dr. Young or Dr. Bigora. The loss of any current or future team member could impair our ability to design, identify, and develop new intellectual property and product candidates and new scientific or product ideas. Additionally, if we lose the services of any of these persons, we would likely be forced to expend significant time and money in the pursuit of replacements, which may result in a delay in the development of our product candidates and the implementation of our business plan and plan of operations and diversion of our management’s attention. We can give no assurance that we could find satisfactory replacements for our current and future key scientific and management employees on terms that would not be unduly expensive or burdensome to us.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we expect to have employment agreements with our key employees, these employment agreements may still allow these employees to leave our employment at any time, for or without cause. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical and scientific personnel.
~~We are a “smaller reporting company,” and the reduced disclosure requirements applicable to us as such may make our common stock less attractive to our stockholders and investors.~~
We are a “smaller reporting company” under the federal securities laws and, as such, are subject to scaled disclosure requirements afforded to such companies. For example, as a smaller reporting company, we are subject to reduced executive compensation disclosure requirements. Our stockholders and investors may find our common stock less attractive as a result of our status as a “smaller reporting company” and our reliance on the reduced disclosure requirements afforded to these companies. If some of our stockholders or investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the market price of our common stock may be more volatile.
We are exposed to cyber-attacks and data breaches, including the risks and costs associated with protecting our systems and maintaining integrity and security of our business information, as well as personal data of our guests, employees and business partners.
We are subject to cyber-attacks. These cyber-attacks can vary in scope and intent from attacks with the objective of compromising our systems, networks and communications for economic gain to attacks with the objective of disrupting, disabling or otherwise compromising our operations. The attacks can encompass a wide range of methods and intent, including phishing attacks, illegitimate requests for payment, theft of intellectual property, theft of confidential or non-public information, installation of malware, installation of ransomware and theft of personal or business information. The breadth and scope of these attacks, as well as the techniques and sophistication used to conduct these attacks, have grown over time. We experienced a cybersecurity breach in January 2018 that resulted in a fraud loss of $144,200 where the probability of recovery of the loss is remote.
A successful cyber-attack may target us directly, or it may be the result of a third party’s inadequate care. In either scenario, we may suffer damage to our systems and data that could interrupt our operations, adversely impact our reputation and brand and expose us to increased risks of governmental investigation, litigation and other liability, any of which could adversely affect our business. Furthermore, responding to such an attack and mitigating the risk of future attacks could result in additional operating and capital costs in systems technology, personnel, monitoring and other investments.
In addition, we are also subject to various risks associated with the collection, handling, storage and transmission of sensitive information. In the course of doing business, we collect employee, customer and other third-party data, including personally identifiable information and individual credit data, for various business purposes. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. If we fail to comply with the various applicable data collection and privacy laws, we could be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely impacted.
Any breach, theft, loss, or fraudulent use of employee, third-party or company data, could adversely impact our reputation and expose us to risks of data loss, business disruption, governmental investigation, litigation and other liability, any of which could adversely affect our business. Significant capital investments and other expenditures could be required to remedy the problem and prevent future breaches, including costs associated with additional security technologies, personnel, experts and credit monitoring services for those whose data has been breached. Further, if we or our vendors experience significant data security breaches or fail to detect and appropriately respond to significant data security breaches, we could be exposed to government enforcement actions and private litigation.
~~-27-~~
~~Risks Related to Ownership of Our Common Stock and This Offering~~
~~If you purchase shares of common stock in this offering, you will suffer substantial and immediate dilution of your investment.~~
You will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. The public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. See the “Dilution” section of this prospectus for a more detailed description of the dilution to investors participating in the offering.
~~You may experience future dilution as a result of future equity offerings, license transactions or acquisitions.~~
In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share in this offering. We may sell shares or other securities in any future offering at a price per share that is less than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into our common stock, in future transactions or acquisitions may be higher or lower than the price per share paid by investors in this offering.
In addition, we may engage in one or more potential license transactions or acquisitions in the future, which could involve issuing our common stock as some or all of the consideration payable by us to complete such transactions. If we issue common stock or securities linked to our common stock, the newly issued securities may have a dilutive effect on the interests of the holders of our common stock. Additionally, future sales of newly issued shares used to effect a transaction could depress the market price of our common stock.
We may also issue equity securities that provide rights, preferences and privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights senior to those of our common stock and the terms of the debt securities issued could impose significant restrictions on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or candidate products, or to grant licenses on terms that are not favorable to us.
~~Our common stock price is expected to be volatile.~~
The offering price of our common stock could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:
● ~~relatively low trading volume, which can result in significant volatility in the market price of our common stock based on a relatively smaller number of trades and dollar amount of transactions;~~
● ~~changes in estimates or recommendations by securities analysts, if any, who cover our common stock;~~
● ~~the timing and results of our current and any future preclinical or clinical trials of our product candidates;~~
● ~~the entry into or termination of key agreements, including, among others, key collaboration and license agreements;~~
● ~~the results and timing of regulatory reviews relating to the approval of our product candidates;~~
● ~~the initiation of, material developments in, or conclusion of, litigation to enforce or defend any of our intellectual property rights;~~
● ~~failure of any of our product candidates, if approved, to achieve commercial success;~~
● ~~general and industry-specific economic conditions that may affect our research and development expenditures;~~
● ~~the results of clinical trials conducted by others on products that would compete with our product candidates;~~
● ~~issues in manufacturing our product candidates or any approved products;~~
~~-28-~~
● ~~the introduction of technological innovations or new commercial products by our competitors;~~
● ~~developments or disputes concerning patent applications, issued patents or other proprietary rights;~~
● ~~future sales of our common stock by us, our insiders or our other stockholders;~~
● ~~a negative outcome in any litigation or potential legal proceeding.~~
● ~~additions and departures of key personnel;~~
● ~~negative publicity or announcements regarding regulatory developments relating to our products;~~
● ~~actual or anticipated fluctuations in our financial condition and operating results, including our cash and cash equivalents balance, operating expenses, cash burn rate or revenue levels;~~
● ~~our filing for protection under federal bankruptcy laws; or~~
● ~~the other factors described in this “Risk Factors” section.~~
The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock, especially in light of the COVID-19 pandemic. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.
~~-29-~~
After this offering, our executive officers, directors and principal stockholders and their affiliates, if they choose to act together, will have the ability to exercise significant influence over all matters submitted to stockholders for approval, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.
Upon the closing of this offering, our executive officers and directors, combined with our stockholders who owned more than 5% of our outstanding common stock before this offering and their respective affiliates, will, in the aggregate, beneficially own shares representing approximately        % of our outstanding capital stock, assuming no exercise of the underwriters’ option to acquire additional common stock in this offering and assuming we issue the number of shares of common stock as set forth on the cover page of this prospectus. As a result, if these stockholders were to choose to act together, they would be able to influence our management and affairs and potentially control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These stockholders acquired their shares of common stock (including shares of common stock issuable upon the conversion of preferred stock) for less than the price of the shares of common stock being acquired in this offering, and these stockholders may have interests, with respect to their common stock, that are different from those of investors in this offering and the concentration of voting power among these stockholders may have an adverse effect on the price of our common stock. This concentration of ownership control may adversely affect the market price of our common stock by:
● ~~delaying, deferring or preventing a change in control;~~
● ~~entrenching our management and the Board of Directors;~~
● ~~impeding a merger, consolidation, takeover or other business combination involving us that other stockholders may desire;~~
● ~~and/or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.~~
See the “Principal Stockholders” section of this prospectus for more information regarding the ownership of our outstanding common stock by our executive officers, directors, principal stockholders and their affiliates.
~~Sales of substantial amounts of our common stock in the public markets could cause the market price of our common stock to decline.~~
Substantial amounts of our common stock may be sold under Rule 144 into the public market which may adversely affect prevailing market prices for the common stock and could impair our ability to raise capital in the future through the sale of equity securities. Rule 144 permits a person who presently is not and who has not been an affiliate of ours for at least three months immediately preceding the sale and who has beneficially owned the shares of common stock for at least six months to sell such shares without restriction other than the requirement that there be current public information as set forth in Rule 144. Shares held by directors, executive officers, and other affiliates will also be subject to volume limitations under Rule 144 under the Securities Act. See “Shares Eligible for Future Sale.” Further, we have granted registration rights to certain of our stockholders. See “Shares Eligible for Future Sale,” which also discusses registration rights we have granted to certain of our stockholders.
We do not currently intend to pay dividends to our stockholders in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in our value.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. There is no guarantee that our valuation will appreciate in value or even maintain the valuation at which our stockholders have purchased their shares.
~~-30-~~
~~We may issue preferred stock which may have greater rights than our common stock.~~
Our Fourth Amended and Restated Certificate of Incorporation allow our Board of Directors to issue up to 1,000,000 shares of preferred stock. Currently, no shares of preferred stock are issued and outstanding. However, we can issue shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from the holders of our common stock. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing it to be converted into shares of common stock, which could dilute the value of our common stock to the current stockholders and could adversely affect the market price, if any, of our common stock.
~~If there should be dissolution of our company, you may not recoup all or any portion of your investment.~~
In the event of a liquidation, dissolution or winding-up of our operations, whether voluntary or involuntary, the proceeds and/or assets remaining after giving effect to such transaction, and the payment of all of our debts and liabilities and distributions required to be made to holders of any outstanding common stock will then be distributed to our stockholders on a pro rata basis. We may incur substantial amounts of additional debt and other obligations such as convertible notes and loans and preferred stock that will rank senior to our common stock, and the terms of our common stock do not limit the amount of such debt or other obligations that we may incur. There can be no assurance that we will have available assets to pay any amount to the holders of common stock, upon such a liquidation, dissolution or winding-up. In this event, you could lose some or all of your investment.
If securities or industry analysts do not publish research or reports about our business, or if they publish negative evaluations of our stock or negative reports about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, there can be no assurance that analysts will cover us or provide favorable coverage. If one or more of the analysts who covers us downgrades our stock or changes his or her opinion of our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
~~We have broad discretion in the use of the net proceeds from this offering and may not use them effectively, which could affect our results of operations and cause our stock price to decline.~~
Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the “Use of Proceeds” section of this prospectus and you will not have the opportunity to assess whether the net proceeds are being used appropriately as part of your investment decision. Our management could spend the net proceeds from this offering in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
Provisions in our corporate documents and Delaware law could have the effect of delaying, deferring, or preventing a change in control of us, even if that change may be considered beneficial by some of our stockholders.
The existence of some provisions of our certificate of incorporation or our bylaws or Delaware law could have the effect of delaying, deferring, or preventing a change in control of us that a stockholder may consider favorable. These provisions include:
● ~~providing that the number of members of our Board is limited to a range fixed by our bylaws;~~
● ~~establishing advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings; and~~
● ~~authorizing the issuance of “blank check” preferred stock, which could be issued by our Board of Directors to issue securities with voting rights and thwart a takeover attempt.~~
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the General Corporation Law of the State of Delaware. Section 203 prevents some stockholders holding more than 15% of our voting stock from engaging in certain business combinations unless the business combination or the transaction that resulted in the stockholder becoming an interested stockholder was approved in advance by our Board of Directors, results in the stockholder holding more than 85% of our voting stock (subject to certain restrictions), or is approved at an annual or special meeting of stockholders by the holders of at least 66 2/3% of our voting stock not held by the stockholder engaging in the transaction. Any provision of our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and affect the price that some investors are willing to pay for our common stock.
~~-31-~~
~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS~~
This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
● ~~our use of the net proceeds from this offering;~~
● ~~our liquidity and working capital requirements, including cash requirements over the next 12 months;~~
● ~~our ability to obtain funding for our operations;~~
● ~~the impact of the COVID-19 pandemic on our business, operations or ability to obtain funding;~~
● ~~our ability to obtain and maintain regulatory approval of PCS499 and/or our other product candidates;~~
● ~~our ability to contract with third-party suppliers, manufacturers and other service providers and their ability to perform adequately;~~
● ~~the potential market size, opportunity and growth potential for PCS499 and/or our other product candidates, if approved;~~
● ~~our ability to build our own sales and marketing capabilities, or seek collaborative partners, to commercialize PCS499 and/or our other product candidates, if approved;~~
● ~~the initiation, timing, progress and results of our pre-clinical studies and clinical trials, and our research and development programs;~~
● ~~our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;~~
● ~~our ability to advance product candidates into, and successfully complete, clinical trials;~~
● ~~our ability to recruit and enroll suitable patients in our clinical trials;~~
● ~~the timing or likelihood of the accomplishment of various scientific, clinical, regulatory filings and approvals and other product development objectives;~~
● ~~the pricing and reimbursement of our product candidates, if approved;~~
● ~~the rate and degree of market acceptance of PCS499 and/or our other product candidates by physicians, patients, third-party payors and others in the medical community, if approved;~~
~~-32-~~
● ~~the implementation of our business model, strategic plans for our business, product candidates and technology;~~
● ~~the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;~~
● ~~developments relating to our competitors and our industry;~~
● ~~the accuracy of our estimates regarding expenses, capital requirements and needs for additional financing; and~~
● ~~our financial performance.~~
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable as of the date of this prospectus, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to new information, actual results or to changes in our expectations, except as required by law.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.
~~-33-~~
~~USE OF PROCEEDS~~
We estimate that we will receive net proceeds of approximately $16.2 million from the sale of the shares of our common stock in this offering, or approximately $18.7 million, if the underwriters exercise their option to purchase additional shares of common stock in full, based on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase (decrease) in the assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020, would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $2.0 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. Similarly, each increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $7.8 million, assuming no change in the assumed initial public offering price.
~~We intend to use the net proceeds from this offering over the next two years to conduct clinical trials and for working capital and other general corporate purposes.~~
We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements through the end of 2022. If we have based our estimates on assumptions that are incorrect, or we increase our anticipated clinical trials, then we could use our available capital resources sooner than we currently expect. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these sources.
Opportunities may come to our attention to expand our current business through acquisitions or in-licenses of complementary companies, medicines or technologies. While we have no current agreements, commitments or understandings for any specific acquisitions or in-licenses at this time, we may use a portion of the net proceeds for these purposes.
Pending their use as described above, we plan to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government.
~~-34-~~
~~MARKET FOR COMMON EQUITY AND DIVIDEND POLICY~~
~~Market Information~~
We have applied to list our common stock on the Nasdaq Capital Market, or Nasdaq, under the symbol “PCSA” and our common stock has been approved for listing contingent on the completion of this offering. There is no assurance that this offering will be completed, or as to the terms of this offering. Our common stock is currently quoted on the OTCQB under the symbol “PCSA.” Quotations on the OTCQB reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. On December 23, 2019, we effected a one-for-7 reverse split of our common stock, or the Reverse Split. Unless otherwise specified or the context otherwise indicates, the information contained in this prospectus has been adjusted to give effect to the Reverse Split. On September 15, 2020, the closing sale price of our common stock as reported on the OTCQB was $8.45 per share. The closing sale price of our common stock as reported on the OTCQB may not be indicative of the market price of our common stock on the Nasdaq Capital Market.
~~Holders of our Common Stock~~
~~As of August 31, 2020, we had 5,515,447 shares of common stock issued and outstanding and 204 holders of record of our common stock.~~
~~Transfer Agent~~
~~Our transfer agent is Equiniti Trust Company, 3200 Cherry Creek Dr. South Suite 430 Denver, CO 80209; telephone (303) 282-4800.~~
~~Dividend Policy~~
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to declare and pay dividends will be made at the discretion of our Board of Directors and will depend on various factors, including applicable laws, our results of operations, our financial condition, our capital requirements, general business conditions, our future prospects and other factors that our Board of directors may deem relevant. Our ability to pay cash dividends on our capital stock in the future may also be limited by the terms of any preferred securities we may issue or agreements governing any additional indebtedness we may incur. Investors should not purchase our common stock with the expectation of receiving cash dividends.
~~-35-~~
~~CAPITALIZATION~~
~~The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2020 as follows:~~
● ~~on an actual basis.~~
● on a pro forma basis after giving effect to the Pro Forma Adjustments based on an assumed public offering price of $8.45 per share, the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020.
● ~~on a pro forma basis, as adjusted to give further effect to the issuance by us of 2,150,000 shares of our common stock in this offering.~~
Our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of the offering determined at pricing. You should read this information together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section.
As of June 30, 2020
Actual Pro forma Pro forma, as adjusted
Cash and cash equivalents $ 452,654 $ 552,654 $
2019 Senior Convertible Notes and accrued interest 859,102 859,102
Line of credit payable and accrued interest 504,023 -
Preferred stock, $0.0001 par value: 1,000,000 shares authorized, no shares issued or outstanding - -
Common stock $0.0001 par value: 30,000,000 shares authorized, 5,514,447 shares issued and outstanding, actual; 6,816,931 shares issued and outstanding, pro forma and                   shares issued and outstanding pro forma, as adjusted⁽¹⁾ 552 683
Additional paid-in capital 19,182,228 28,611,120
Accumulated equity (12,589,760 ) (21,414,760 )

Total stockholders’ equity 6,593,020 7,197,043

Total capitalization $ 7,956,145 $ 8,056,145 $
⁽¹⁾~~The number of shares of our common stock to be outstanding after this offering gives effect to the Pro Forma Adjustments and excludes the following as of June 30, 2020:~~
● 121,557 shares of our common stock issuable upon the exercise of outstanding stock options issued under the Omnibus Plan, having a weighted-average exercise price of $17.24 per share, of which 33,564 options have vested, having a weighted-average exercise price of $17.50 per share. An additional 34,652 options will vest upon the successful completion of this offering;
● 324,360 shares of our common stock granted on August 5, 2020 to employees and directors as restricted stock awards under the Omnibus Plan of which restricted stock awards for 214,078 shares of common stock vest upon the successful completion of this offering, with the remaining 110,282 shares of common stock vesting over two years;
● ~~54,083 shares of common stock reserved for issuance pursuant to future awards under the Omnibus Plan;~~
● 47,772 shares of our common stock issuable upon the exercise of outstanding non-qualified stock options granted to our Chief Financial Officer on September 1, 2018, having an exercise price of $19.88 per share, of which 23,289 shares have vested;
● ~~533,959 shares of common stock issuable upon exercise of the outstanding and exercisable stock purchase warrants having a weighted average exercise price of $18.35 per share; and~~
●
113,013 shares of common stock issuable upon the conversion of $805,000 principal amount of outstanding 2019 Senior Convertible Notes and related accrued interest, based on a conversion price of $7.61 per share, which, pursuant to the 2019 Senior Note Agreement, is a 10% discount on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020.
~~-36-~~
~~DILUTION~~
If you invest in our common stock in this offering, your interest will immediately be diluted to the extent of the difference between the public offering price per share of our common stock in this offering and the as adjusted net tangible book value per share of our common stock immediately after this offering.
Our historical net tangible book value is the amount of our total tangible assets less our total liabilities and deferred taxes. Our historical net tangible book value per share is our historical net tangible book value divided by 5,514,447, the number of shares of common stock outstanding as of June 30, 2020. Our historical net tangible book value as of June 30, 2020, was $(1,336,104), or $(0.24) per share of common stock.
Our pro forma net tangible book value per share as of June 30, 2020 gives effect to the Pro Forma Adjustments based on an assumed public offering price of $8.45 per share, and is calculated based on an aggregate of 6,816,931 shares of our common stock outstanding.
Our pro forma as adjusted net tangible book value per share gives further effect to the issuance by us of 2,150,000 shares of our common stock in this offering and receipt of the net proceeds therefrom, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed public offering price of $8.45 per share, and is calculated based on an aggregate of 8,966,931 shares of our common stock outstanding.
~~The following table illustrates this per share dilution to investors participating in this offering:~~
Assumed public offering price per share $ 8.45
Historical net tangible book value per share as of June 30, 2020, before giving effect to the offering $ (0.24 )
Pro forma change in net tangible book value per share as of June 30, 2020 0.13
Pro forma net tangible book value as of June 30, 2020, before giving effect to the offering (0.11 )
Increase in net tangible book value per share from new investors participating in this offering 1.84
Pro forma, as adjusted net tangible book value per share after this offering 1.73
Dilution in net tangible book value per share to new investors participating in this offering 6.72
The information discussed above is illustrative only, and the dilution information following this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. A $1.00 increase in the assumed public offering price of $8.45 per share, ~~which~~ represents the last reported sales price of our common stock on the OTCQB on September 15, 2020, would increase the pro forma, as adjusted net tangible book value by $0.24 per share and the dilution to investors participating in this offering by $0.76 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. Similarly, a $1.00 decrease in the assumed public offering price of $8.45 per share, ~~which~~ represents the last reported sales price of our common stock on the OTCQB on September 15, 2020, would decrease the pro forma, as adjusted net tangible book value by ($0.25) per share and the dilution to investors participating in this offering by ($0.75) per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
We may also increase or decrease the number of shares we are offering. An increase of 1,000,000 shares offered by us would increase the pro forma, as adjusted net tangible book value by $0.61 per share and decrease the dilution to investors participating in this offering by $(0.61) per share, assuming the assumed public offering price of $8.45 per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. Similarly, a decrease of 1,000,000 shares offered by us would decrease the pro forma, as adjusted net tangible book value by ($0.76) per share and increase the dilution to investors participating in this offering by $0.76 per share, assuming the assumed public offering price of $8.45 per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
If the underwriters exercise their option to purchase additional shares of common stock in full, the net tangible book value as of June 30, 2020, will increase to $18.0 million, or $1.94 per share, representing an increase to existing stockholders of $0.21 per share, and decrease the dilution to investors participating in this offering by $(0.21) per share.
The number of shares of our common stock to be outstanding after this offering is based on an aggregate of 5,515,447 shares of common stock outstanding as of June 30, 2020, as adjusted for the Pro Forma Adjustments and the issuance of 2,150,000 shares in this offering and excludes the following as of June 30, 2020:
● 121,557 shares of our common stock issuable upon the exercise of outstanding stock options issued under the Omnibus Plan, having a weighted-average exercise price of $17.24 per share, of which 33,564 options have vested, having a weighted-average exercise price of $17.50 per share. An additional 34,652 options will vest upon the successful completion of this offering;
● 324,360 shares of our common stock granted on August 5, 2020 to employees and directors as restricted stock awards under the Omnibus Plan of which restricted stock awards for 214,078 shares of common stock vest upon the successful completion of this offering, with the remaining 110,282 shares of common stock vesting over two years;
● ~~54,083 shares of common stock reserved for issuance pursuant to future awards under the Omnibus Plan;~~
● 47,772 shares of our common stock issuable upon the exercise of outstanding non-qualified stock options granted to our Chief Financial Officer on September 1, 2018, having an exercise price of $19.88 per share, of which 23,289 shares have vested; and
● ~~533,959 shares of common stock issuable upon exercise of the outstanding and exercisable stock purchase warrants having a weighted average exercise price of $18.35 per share.~~
●
113,013 shares of common stock issuable upon the conversion of $805,000 principal amount of outstanding 2019 Senior Convertible Notes and related accrued interest, based on a conversion price of $7.61 per share, which, pursuant to the 2019 Senior Note Agreement, is a 10% discount on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020.
To the extent that any options are exercised, new options or other securities are issued under our equity incentive plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.
~~-37-~~
~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described below.
~~Overview~~
We are a clinical stage biopharmaceutical company focused on the development of drug products that are intended to improve the survival and/or quality of life for patients who have a highly unmet medical need condition. Within this group of pharmaceutical products, we currently are developing one product for multiple indications (i.e., the use of a drug to treat a particular disease) and will begin developing our newly acquired drugs (PCS12852, PCS6422, PCS11T and PCS100) once adequate funding has been obtained. We continue searching for additional products for our portfolio that meet our criteria.
Our drug portfolio approach is to develop drugs with potentially high return on investment and lower risk of development failure. Our drugs are focused on treating patients who do not have adequate treatment options for their conditions and have some clinical evidence supporting the efficacy of the drug, whether it be evidence with the drug itself or a drug with similar pharmacological properties. Given the prior success of our development team, the regulatory science approach that we employ not only allows us to develop drugs focused on FDA approval, but also allows us to select drugs for our portfolio which may have a greater chance for approval in a population of patients who need treatment options.
~~Part of our business strategy is:~~
~~(i)~~ to identify drugs that have potential efficacy in patients with an unmet medical need, as demonstrated by some clinical evidence that the targeted pharmacology of the drug provides clinical efficacy in the targeted patient population, including published case studies or clinical experience;
~~(ii)~~ ~~to identify drug products that have been developed or approved for other indications but can be repurposed to treat those patients who have an unmet medical need; and~~
~~(iii)~~ to identify drugs that can be quickly developed such that within 2-4 years critical value added clinical milestones can be achieved (for example, a pivotal study can be completed in 2 to 4 years or enough clinical data can be obtained to demonstrate the value of the asset to a future licensing partner) while advancing the drug closer to the submission of an NDA to the FDA, or to license the drug to a potential strategic partner just prior to a more expensive and time consuming pivotal study.
In order to add significant value to our in-licensed drugs within 2 to 4 years, the drugs must be in the clinical development stage and not in discovery stage, and during those 2 to 4 years we must be able to obtain clinical data to support the added value. The additional clinical data could range from a clinical proof-of-concept data to further demonstrate that the proposed pharmacology occurs clinically in the targeted patient population in a pivotal well-designed randomized controlled trial.
Our portfolio specifically includes drugs that (i) already have clinical proof-of-concept data demonstrating the desired pharmacological activity in humans or, minimally, clinical evidence in the form of case studies or clinical experience demonstrating the drug or a similar drug pharmacologically can successfully treat patients with the targeted indication, (ii) target indications for which the FDA believes that a single positive pivotal study demonstrating efficacy provides enough evidence that the clinical benefits of the drug and its approval outweighs the risks associated with the drug or the present standard of care (e.g., some orphan indications, many serious life-threatening conditions, some serious quality of life conditions), and/or (iii) target indications where the prevalence of the condition and the likelihood of patients enrolling in a study meet the desired time-frame to demonstrate that the drug can, at some level, treat or potentially treat patients with the condition.
To advance our mission, we have assembled an experienced and talented management and product development team. Our team is experienced in developing drug products through all principal regulatory tiers from IND enabling studies to NDA submission. Our combined scientific, development and regulatory experience has resulted in more than 30 drug approvals by the FDA, over 100 meetings with the FDA and involvement with more than 50 drug development programs, including drug products targeted to patients who have an unmet medical need. Although we believe that the skills and experience of our team in drug development and commercialization is an important indicator of our future success, the past successes of our team in developing and commercializing pharmaceutical products does not guarantee that they will successfully develop and commercialize drugs for us. In addition, the growth in revenues of companies at which our executive officers and directors served in was due to many factors and does not guarantee that they will successfully operate or manage us or that we will experience similar growth in revenues, even if they continue to serve as executive officers and/or directors.
Our ability to generate meaningful revenue from any products depends on our ability to out-license the drugs in the U.S. and/or ex-U.S. before or after we obtain FDA NDA approval. Even if our products are authorized and approved by the FDA, it should be noted that the products must still meet the challenges of successful marketing, distribution and consumer acceptance.
~~-38-~~
~~Going Concern and Management’s Plan~~
Our consolidated financial statements are 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 regarding product development and commercialization, 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 and having 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.
We have relied primarily on private placements with a small group of accredited investors to finance our business and operations. As described in more detail below, we recently entered into two line of credit agreements with related parties providing a revolving commitment of an aggregate of up to $1.4 million. We have not had any revenue since our inception, and we do not currently have any revenue under contract or any immediate sales prospects. For the six months ended June 30, 2020 and year ended December 31, 2019, we incurred a net loss from continuing operations of approximately $1.6 million and $3.4 million, respectively; and used approximately $897,000 and $2.8 million in net cash from operating activities, respectively. We expect our operating costs to be substantial as we incur costs related to the clinical trials for our product candidates and that we will operate at a loss for the foreseeable future. At June 30, 2020, we had cash and cash equivalents totaling $452,654.
On September 20, 2019, we entered into two separate Line of Credit Agreements (“LOC Agreements”) to borrow up to $700,000 with current stockholders and related parties DKBK Enterprises, LLC (“DKBK”) and CorLyst, LLC (“CorLyst”) ($1.4 million total). Under the LOC Agreements, all funds borrowed bear an 8% annual interest rate. The lenders have the right to convert all or any portion of the debt and interest into shares of our common stock. Our Chief Executive Officer (CEO) is also the CEO and Managing Member of both lenders. DKBK directly holds 16,166 shares of our common stock and CorLyst beneficially owns 1,095,649 shares. In April and June 2020, we drew $500,000 under the LOC Agreement with DKBK. On July 21, 2020, we drew an additional $200,000, bringing the total amount drawn under the LOC Agreement with DKBK to $700,000.
In December 2019 we closed our bridge financing and issued $805,000 of the 2019 Senior Notes to accredited investors. In order to preserve cash, in August 2019 we began delaying some cash outflows, primarily through the deferred payment of certain salaries ($210,800 has been included in accrued expenses at June 30, 2020) until such time as we have raised sufficient funding.
In May 2020, we entered into a promissory note in favor of the Bank of America under the Small Business Administration Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (“the CARES Act”), for a $162,459 loan (the “PPP Loan”). We have used the loan proceeds for payroll costs in accordance with the relevant terms and conditions of the CARES Act.
Substantial doubt existed about our ability to continue as a going concern as of the date of our annual report for the year ended December 31, 2019 and our auditors included a going concern paragraph in their Report of Independent Registered Public Accounting Firm accompanying our audited financial statements for the year ended December 31, 2019. The accompanying 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.
It is our current expectation, assuming the receipt of the net proceeds from this offering and based on current cash flow projections, that the going concern paragraph would be removed in our auditors’ report for the year ending December 31, 2020.
~~-39-~~
~~Components of Results of Operations~~
On October 4, 2017, we acquired all the net assets of Promet Therapeutics, LLC (“Promet) a private Delaware limited liability company, including the rights to the CoNCERT Agreement in exchange for 4,535,121 shares of our common stock. Immediately following the transaction, the former equity holders of Promet owned approximately 84% and held approximately 6% of the shares for the benefit of CoNCERT in relation to the CoNCERT contribution of the license to Processa as part of the transaction, and our stockholders immediately prior to the transaction owned approximately 10% of our common stock. Promet distributed all 4,236,421 shares of the common stock it held to its partners.
We accounted for the net asset acquisition transaction as a “reverse acquisition” merger under the acquisition method for GAAP, where Promet was considered the accounting acquirer; and for tax purposes, as a tax-free contribution under Internal Revenue Code Section 351. Accordingly, Promet’s historical results of operations replaced our historical results of operations for all periods prior to the merger. Prior to the acquisition, we had nominal net liabilities and operations. We were considered a non-operating public shell corporation.
~~Revenues~~
~~We did not have any revenue in the periods presented below, nor do we currently have any revenue under contract or any immediate sales prospects.~~
~~Operating Expenses~~
~~Research and Development Expenses~~.
Our research and development costs are expensed as incurred. Research and development expenses include (i) amortization of the exclusive license intangible asset and software used in research and development activities, (ii) internal research and development staff related payroll, taxes, stock-based compensation and employee benefits, and (iii) program and testing related expenses, including external consulting and professional fees related to the product testing and our development activities. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded as prepaid expenses and expensed when the research and development activities are performed.
~~General and Administrative Expenses~~.
General and administrative expenses primarily consist of payroll, stock-based compensation and employee benefits for general and administrative staff, professional fees for legal, accounting and tax services and other general and administrative costs such as rent, utilities and taxes.
~~Interest Expense and Interest Income.~~
Interest expense incurred consists primarily of interest expense related to our 2017 and 2019 Senior Notes. Interest income represents interest earned on funds in our bank accounts and certificates of deposit.
~~Income Tax Benefit~~.
We recognize an income tax benefit as a result of our recording and amortizing the deferred tax liability created in connection with our acquisition of CoNCERT’s license and “Know-How” in exchange for Processa stock that had been issued in the Internal Revenue Code Section 351 transaction on March 19, 2018. The Section 351 transaction treated the acquisition of the Know-How for stock as a tax-free exchange. As a result, under ASC 740-10-25-51 ~~Income Taxes~~, Processa recorded a deferred tax liability of $3,037,147 for the acquired temporary difference between the financial reporting basis of $11,038,929 and the tax basis of $1,782. Each year, the deferred tax liability is decreased for the non-deductibility of the amortization of the intangible asset for the current period. Additionally, the liability is being offset for the deferred tax assets resulting from our net taxable operating losses.
~~-40-~~
~~Comparison of the three and six months ended June 30, 2020 and 2019~~
~~The following table summarizes our net loss during the periods indicated:~~
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 Change 2020 2019 Change
Operating Expenses
Research and development expenses $ 427,109 $ 726,904 $ (299,795 ) $ 928,855 $ 1,211,655 $ (282,800 )
General and administrative expenses 374,878 410,072 (35,194 ) 859,255 807,837 51,418

Operating Loss (801,987 ) (1,136,976 ) (1,788,110 ) (2,019,492 )
Other Income (Expense)
Interest expense (19,280 ) (6,102 ) (13,178 ) (36,450 ) (10,702 ) (25,748 )
Interest income 18 3,398 (3,380 ) 846 9,383 (8,537 )
Net Operating Loss Before Income Tax Benefit (821,249 ) (1,139,680 ) (1,823,714 ) (2,020,811 )
Income Tax Benefit 87,835 170,602 (82,767 ) 215,964 300,901 (84,937 )
Net Loss $ (733,414 ) $ (969,078 ) $ (1,607,750 ) $ (1,719,910 )
~~Revenues~~.
~~We had no revenue during the three and six months ended June 30, 2020 and 2019. We do not currently have any revenue under contract or any immediate sales prospects.~~
~~Research and Development Expenses~~.
Our research and development costs are expensed as incurred. Research and development expenses include (i) licensing of compounds for product testing and development, (ii) program and testing related expenses, (iii) amortization of the exclusive PCS499 license intangible asset used in research and development activities, and (iv) internal research and development staff related payroll, taxes and employee benefits, external consulting and professional fees related to the product testing and our development activities. Non-refundable advance payments for goods and services to be used in future research and development activities are recorded as prepaid expenses and expensed when the research and development activities are performed.
During the three months ended June 30, 2020 and 2019, we incurred total research and development expenses of $427,109 and $726,904, respectively, for the continued development and testing of our lead product, PCS499. Research and development expenses were approximately $929,000 and $1.2 million for the six months ended June 30, 2020 and 2019, respectively. Costs for the three and six months ended June 30, 2020 and 2019 were as follows:
Three months ended
June 30, Six months ended
June 30,
2020 2019 2020 2019
Amortization of intangible assets $ 198,832 $ 198,832 $ 397,664 $ 397,664
Research and development salaries and benefits 114,579 160,992 254,851 319,848
Preclinical, clinical trial and other costs 113,698 367,080 276,340 494,143
Total $ 427,109 $ 726,904 $ 928,855 $ 1,211,655
Overall, during the three months ended June 30, 2020, our research and development costs decreased by $299,795. The decrease was due to a decrease in preclinical, clinical trial and other costs of $253,382 during the three months ended June 30, 2020 when compared to the same period in 2019. This decrease was attributable to decreased costs related to our Phase 2A clinical trial, as we have completed the patient portion of the study. We also had a decrease in research and development salaries and benefits of $46,413 for the three months ended June 30, 2020 when compared to the same period in 2019 related to the departure of two research and development team members in the first quarter of 2020.
During the six months ended June 30, 2020, our research and development costs decreased by $282,800 as compared to the six months ended June 30, 2019. The decrease in research and development expenses was due to a decrease in preclinical, clinical trial and other costs of $217,803 and in research and development salaries and benefits of $64,997 during the six months ended June 30, 2020 when compared to the same period in 2019 for the same reasons as stated above.
We anticipate our research and development costs to increase significantly in the future as we continue pre-clinical studies and conduct future clinical trials related to our current drug portfolio. We incurred $181,751 of costs related to our Phase 2A trial during the six months ended June 30, 2020 and expect to spend an additional $242,000 for the remainder of the trial. We believe, based on our estimates, the total cost of our current Phase 2A trial in NL to be approximately $1.5 million. We had a clinical trial funding investor pay for $900,000 of the clinical trial costs and we are covering the remaining $600,000 with funds received from the sale of our 2019 Senior Notes and our LOC Agreements, as necessary.
The funding necessary to bring a drug candidate to market is, however, subject to numerous uncertainties. Once a drug candidate is identified, the further development of that drug candidate can 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. Certain of our programs may be terminated due to the lack of scientific progress and lack of prospects for ultimate commercialization. We anticipate our research and development costs to increase in the future as we finalize our Phase 2A clinical trial activities and beginning designing and conducting a Phase 2B trial to evaluate the ability of PCS499 to completely close ulcers in patients with NL and initiate any research activities related to other drug candidates in our portfolio (PCS12852, PCS6422, PCS11T and PCS100). We expect to begin recruiting patients for our Phase 2B trial for NL in early 2021.
Our clinical trial 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.
~~-41-~~
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 series are recorded as prepaid expenses until the services are rendered.
~~General and Administrative Expenses~~.
Our general and administrative expenses for the three months ended June 30, 2020 decreased by $35,194 to $374,878 from $410,072 for the three months ended June 30, 2019. We experienced reductions in professional fees for legal, accounting, advisory and consulting costs of approximately $40,000, as well as decreases in other administrative costs such as office expenses, travel, and taxes and licenses of approximately $25,000. These decreases were offset by an increase in insurance and telephone expenses of $3,800 and increased payroll and related costs of approximately $26,000 (primarily due to an increase in stock-based compensation of approximately $23,000). Reimbursements from CorLyst of $25,894 for rent and other costs during the six months ended June 30, 2020 were comparable to the same period in 2019.
For the six months ended June 30, 2020, general and administrative expenses increased by $51,418 to $859,255 from $807,837 for the six months ended June 30, 2019. The majority of the increase was due to a $109,000 increase in taxes and licenses, primarily due to our Delaware franchise tax as a result of our 1-for-7 reverse stock split in December 2019. Delaware used the assumed par value method to compute their franchise tax. The reverse stock split increased the assumed par value per share which was assessed on the number of authorized shares to compute the franchise tax. On June 25, 2020, we amended our certificate of incorporation to reduce the number of authorized shares in part to decrease our future Delaware franchise tax.
We also experienced increases of approximately $44,000 in payroll and related costs (due to an increase in stock-based compensation of approximately $47,000) and approximately $12,000 in administrative costs for items such as insurance and telephone expenses. The overall increase was offset by decreases in professional fees for legal, accounting, advisory and consulting costs of approximately $95,000, as well as reductions of approximately $20,000 in office expenses, travel, continuing education, utilities and repairs and maintenance. Reimbursements from CorLyst of $50,642 for rent and other costs during the six months ended June 30, 2020 were $1,800 less than the same period in 2019.
We expect the general and administrative expenses to increase in the future as we add staff to support our growing research and development activities and the administration required to operate as a public company.
~~Interest Expense and Interest Income.~~
Interest expense was $19,280 and $6,102 for the three months ended June 30, 2020 and 2019, respectively, and $36,450 and $10,702 for the six months ended June 30, 2020 and 2019, respectively, related to our $805,000 and $2.58 million of 8% Senior Notes sold in 2019 and 2017, respectively, and to the 2020 borrowings on the LOC Agreement with DKBK. Included in interest expense is the amortization of debt issuance costs totaling $2,140 and $0 for the six months ended June 30, 2020 and 2019, respectively.
Interest income was $18 and $3,398 for the three months ended June 30, 2020 and 2019, respectively, and $846 and $9,383 for the six months ended June 30, 2020 and 2019, respectively. Interest income represents interest earned on money market funds.
~~Income Tax Benefit~~.
We recognized an income tax benefit of $87,835 and $170,602 for the three months ended June 30, 2020 and 2019, respectively, and $215,964 and $300,901 for the six months ended June 30, 2020 and 2019, respectively, as a result of our recording and amortizing the deferred tax liability created in connection with our acquisition of CoNCERT’s license and “Know-How” in exchange for Processa stock that had been issued in the Internal Revenue Code Section 351 transaction on March 19, 2018. The Section 351 transaction treated the acquisition of the Know-How for stock as a tax-free exchange. As a result, under ASC 740-10-25-51 ~~Income Taxes~~, we recorded a deferred tax liability of $3,037,147 for the acquired temporary difference between the financial reporting basis of $11,038,929 and the tax basis of $1,782. The deferred tax liability will be reduced for the effect of the non-deductibility of the amortization of the intangible asset and may be offset by the deferred tax assets resulting from net operating tax losses. This offset results in the recognition of a deferred tax benefit shown in the condensed consolidated statements of operations.
~~Comparison of the years ended December 31, 2019 and 2018~~
~~The following table summarizes our operations and net loss during the periods indicated:~~
Year ended
December 31,
2019 2018
Operating Expenses
Research and development expenses $ 2,320,573 $ 3,085,317
General and administrative expenses 1,614,909 1,439,623

Operating Loss (3,935,482 ) (4,524,940 )

Other Income (Expense)
Interest expense (36,658 ) (161,205 )
Interest income 11,548 18,297

Net Operating Loss Before Income Tax Benefit (3,960,592 ) (4,667,848 )
Income Tax Benefit 602,716 902,801

Net Loss $ (3,357,876 ) $ (3,765,047 )
~~-42-~~
~~Revenues~~
~~We had no revenue during the years ended December 31, 2019 and 2018, and we do not currently have any revenue under contract or any immediate sales prospects.~~
~~Research and Development Expenses.~~
During the years ended December 31, 2019 and 2018, we incurred total research and development expenses of $2,320,573, and $3,085,317, respectively, for the continued development and testing of our lead product, PCS499. As a result of exercising the CoNCERT license and option agreement for PCS499 in March 2018, and the purchase of a software license during the second quarter of 2018, we recognized $795,328 and $621,647 of amortization expense during the years ended December 31, 2019 and 2018, respectively. Costs for the years ended December 31, 2019 and 2018 were as follows:
Year ended
December 31,
2019 2018
Amortization of intangible assets $ 795,328 $ 621,647
Research and development salaries and benefits 742,254 650,702
Preclinical, clinical trial and other costs 782,991 1,812,968
Total $ 2,320,573 $ 3,085,317
Our research and development salaries and benefits increased by $91,552 for the year ended December 31, 2019 when compared to the same period in 2018 related to an increase in stock-based compensation of $113,239, which was offset by a decrease in salaries and related benefits of $21,687. The decrease in salaries and related benefits related to one of our research and development team members having a reduced level of involvement in 2019. We also recognized lower research and development expenses for preclinical, clinical trial and other costs of $1,029,977 during the year ended December 31, 2019 when compared to the same period in 2018. During the year ended December 31, 2019, our focus was on enrolling patients in our trial, along with other trial costs, including providing doses of PCS499 to participants in our Phase 2A clinical trial in NL. In contrast, during the same period in 2018, we experienced significantly higher costs related to a Phase 1 trial for PCS499 and costs related to having to establish a new site to contract manufacture the tablets of PCS499 needed for our clinical trial since the original CoNCERT tablet manufacturing site could no longer be used.
We incurred $554,935 in costs related to our Phase 2A trial during the year ended December 31, 2019 and expect to spend an additional approximately $487,000 through 2020 to complete our current trial. We believe, based on our estimates, the cost of our current Phase 2A trial to be approximately $1.5 million. PoC Capital paid for $900,000 of the clinical trial costs, and we will cover the remaining $600,000 with funds received from the sale of our 2019 Senior Notes and our LOC Agreements, as necessary. During the year ended December 31, 2018, we made payments to our CRO related to our Phase 2A trial of approximately $239,000. We have accounted for these payments as either a prepaid expense or a research and development expense depending on whether the related service has been provided. During the year ended December 31, 2019, PoC Capital made payments directly to our CRO totaling $689,168 for amounts invoiced. PoC Capital also repaid us $210,832 for clinical trial expenses we previously paid to our CRO, $180,119 of which is included in Prepaid and Other on our consolidated balance sheet at December 31, 2019.
~~General and Administrative Expenses~~.
Our general and administrative expenses for the year ended December 31, 2019 increased by $175,286 to $1,614,909 from $1,439,623 for the year ended December 31, 2018. The increase related mostly to increased payroll and related costs of approximately $413,000 (including an increase in stock-based compensation of $323,176) as we built our finance team and hired our CFO and Director of Finance and Accounting in the second half of 2018 to support our growth and public company reporting and compliance requirements. We also experienced increases of approximately $47,000 in other administrative costs such as insurance, office, rent, repairs and maintenance, and travel expenses. Our tax expense also increased by approximately $84,000 in 2019 compared to 2018 due to our Delaware franchise taxes.
The above increases were offset by a cybersecurity fraud loss of approximately $144,000, for which we did not have insurance coverage, which occurred during the year ended December 31, 2018. We also had a reduction in professional fees of approximately $222,000, as we established in-house capabilities, and in other administrative expenses of approximately $7,300. Reimbursable expenses from CorLyst of $103,047 for rent and other costs during the year ended December 31, 2019 were approximately $4,400 less than those the same periods in 2018.
~~-43-~~
~~Interest Expense and Interest Income.~~
Interest expense was $36,658 and $161,205 for the years ended December 31, 2019 and 2018, respectively, related to our 2019 and 2017 Senior Notes. Included in interest expense is the amortization of debt issuance costs totaling $1,783 and $67,069 for the years ended December 31, 2019 and 2018, respectively. In May 2018, $2.35 million of the 2017 Senior Notes were converted into shares of our common stock and stock purchase warrants.
Interest income was $11,548 and $18,297 for the years ended December 31, 2019 and 2018, respectively. Interest income represents interest earned on funds in our bank accounts and certificates of deposit.
~~Income Tax Benefit~~.
We recognized an income tax benefit of $602,716 and $902,801 for the years ended December 31, 2019 and 2018, respectively. Our taxable net operating loss for 2019 was $1,043,567 less than that of 2018 as we focus on the Phase 2A clinical trial study and decrease administrative costs such as professional fees.
~~Financial Condition~~
At June 30, 2020, we had $452,654 in cash. We used net cash in our operating activities of $897,029 and $1,414,903 during the six months ended June 30, 2020 and 2019, respectively. The decrease in cash used in operating activities during the first six months of 2020 compared to the comparable period in 2019 was related to a decreased amount of direct cash costs incurred, such as salaries and clinical trial costs.
Our total assets decreased by approximately $872,000 to $10 million at June 30, 2020 compared to $10.9 million at December 31, 2019. This decrease is a result of the operating costs we incurred during the six months ended June 30, 2020.
At June 30, 2020, our total liabilities, not including the impact of deferred income taxes, increased approximately $764,000 to $2,102,770 when compared to $1,338,954 at December 31, 2019. This increase is due to increases in accrued expenses related to accrued salary liability, accrued interest related to the 2019 Senior Notes and other borrowings, funds drawn under the LOC Agreement with DKBK and the promissory note we entered into with the Bank of America under the Paycheck Protection Program.
In connection with exercising the option agreement with CoNCERT, we recognized a $3,037,147 deferred income tax liability since the intangible assets purchased had only a nominal tax basis. Our deferred tax liability has been and is expected to be reduced each period by the effect of the combination of the tax non-deductibility of the amortization of the intangible asset and an amount up to the income tax effect of our net loss.
~~Liquidity and Capital Resources~~
To date, we have funded our business and operations primarily through the private placement of equity securities and senior secured convertible notes. At June 30, 2020, we had $452,654 in cash compared to $691,536 at December 31, 2019. We have taken the following actions to address our liquidity:
● Starting in August 2019, we began deferring the salaries of certain employees. At June 30, 2020 we have deferred a total of $210,800 (which has been included in accrued expenses on the condensed consolidated balance sheet) until such time as we have raised sufficient funding.
● On September 20, 2019, we entered into two separate LOC Agreements with current stockholders and related parties DKBK and CorLyst, which provide a revolving commitment of up to $700,000 each ($1.4 million total). Under the LOC Agreements, all funds borrowed will bear an 8% annual interest rate. The Lenders have the right to convert all or any portion of the debt and interest into shares of our common stock. Our CEO is also the CEO and Managing Member of both Lenders. DKBK directly holds 16,166 shares of our common stock, and CorLyst beneficially owns 1,095,649 shares. In April and June 2020, we drew $500,000 under the LOC Agreement with DKBK. On July 21, 2020, we drew an additional $200,000, bringing the total amount drawn under the LOC Agreement with DKBK to $700,000. We have not drawn any funds under the LOC Agreement with CorLyst.
● ~~In December 2019, we closed a bridge financing raising $805,000 through the issuance of 2019 Senior Notes to accredited investors.~~
● ~~In May 2020, we received $162,459 from a loan with Bank of America under the Paycheck Protection Program.~~
● ~~Through this offering, we intend to undertake an underwritten capital raise and, upon completion of this offering, list our common stock to the Nasdaq Capital Market.~~
Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to which we may enter into additional agreements with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future capital requirements will depend on many factors, including:
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● ~~the timing and extent of spending on our research and development efforts, including with respect to PCS499 and our other product candidates;~~
● ~~the scope, rate of progress, results and cost of our clinical trials, preclinical testing and other related activities;~~
● ~~the time and costs involved in obtaining regulatory and marketing approvals in multiple jurisdictions for our product candidates that successfully complete clinical trials;~~
● ~~the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;~~
● ~~the emergence of competing technologies or other adverse market developments;~~
● ~~the introduction of new product candidates and the number and characteristics of product candidates that we pursue; and~~
● ~~the potential acquisition and in-licensing of other technologies, products or assets.~~
Based on our current plan and assuming we consummate this offering, we believe the net proceeds together with our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through 2022. The funds will allow us to complete the closeout of our current Phase 2A trial in NL, conduct the Phase 2B clinical trial approved by the FDA and develop our other drug candidates. We may incur costs that we do not currently anticipate in order to develop our drug candidates, requiring us to need additional capital sooner than currently expected. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these sources.
~~Cash Flows~~
~~The following table sets forth our sources and uses of cash and cash equivalents for the six months ended June 30, 2020 and 2019:~~
Six months ended
June 30,
2020 2019
Net cash (used in) provided by:
Operating activities $ (897,029 ) $ (1,414,903 )
Investing activities - -
Financing activities 658,147 395,927
Net decrease in cash $ (238,882 ) $ (1,018,976 )
~~Net cash used in operating activities~~
We used net cash in our operating activities of $897,029 and $1,414,903 during the six months ended June 30, 2020 and 2019, respectively. The decrease in cash used in operating activities during the first six months of 2020 compared to the comparable period in 2019 was related to a decreased amount of direct cash costs incurred, such as salaries and clinical trial costs. Additionally, prepaid expenses decreased by approximately $218,000, $145,000 of which related to costs for our Phase 2A clinical trial.
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Since we are in the process of developing our products, we anticipate our research and development efforts and on-going general and administrative costs will continue to generate negative cash flows from operating activities for the foreseeable future and that these amounts will increase in the future. We do not currently sell or distribute pharmaceutical products or have any sales or marketing capabilities.
~~Net cash used in investing activities~~
~~We had no cash sources or uses for investing activities during the six months ended June 30, 2020 or 2019.~~
~~Net cash (used in) provided by financing activities~~
Net cash provided by financing activities during the six months ended June 30, 2020 of $658,147 was from borrowings totaling $500,000 under our LOC Agreement with DKBK and $162,459 we received from the Bank of America pursuant to a promissory note under the Paycheck Protection Program, less transaction costs of $4,312 related to our anticipated 2020 offering. During the six months ended June 30, 2019, net cash provided by financing activities of $395,927 were funds received from our clinical trial funding investor in partial satisfaction of his stock subscription receivable that he paid directly to our CRO.
We expect that we will continue to seek additional capital through a combination of private and public equity offerings, debt financings, and strategic collaborations to fund future operations. However, no assurance can be given that we will be successful in raising adequate funds needed. Absent additional financing, substantial doubt exists about our ability to continue as a going concern, as noted under “Going Concern” above.
~~Off-balance~~ ~~Sheet Arrangements~~
~~We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.~~
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~~Critical Accounting Policies and Use of Estimates~~
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
~~We believe the following accounting policies and estimates are most critical to aid in understanding and evaluating our financial results reported in our consolidated financial statements.~~
~~Valuation of Intangible Assets~~
Our intangible assets consist of the capitalized costs of $20,500 for a software license and $11,038,929 associated with the exercise of the option to acquire the exclusive license from CoNCERT related to patent rights and know-how to develop and commercialize compounds and products for PCS499 and each metabolite thereof and the related income tax effects. The capitalized costs for the license rights to PCS499, in addition to the fair value of the common stock issued, also includes $1,782 in transaction costs and $3,037,147 associated with the initial recognition of an offsetting deferred tax liability related to the acquired temporary difference for an asset purchased that is not a business combination and has a nominal tax basis in accordance with ASC 740-10-25-51 ~~Income Taxes~~~~. In accordance with ASC Topic 730,~~ ~~Research and Development~~, we capitalized the costs of acquiring the exclusive license rights to PCS499 as the exclusive license rights represent intangible assets to be used in research and development activities that have future alternative uses.
We used a market approach to estimate the fair value of the common stock issued to CoNCERT in this transaction. Our estimate was based on the final negotiated number of shares of stock issued and the volume weighted average price of our common stock quoted on the OTC Pink Marketplace over a 45-day period preceding the mid-February 2018 finalized negotiation of the modification to the option and license agreement with CoNCERT. We believe the fair values used to record intangible assets acquired in this transaction are based upon reasonable estimates and assumptions given the facts and circumstances as of the related valuation dates.
~~We determined our intangible assets to have finite useful lives and review them for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable.~~
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~~Clinical Trial Accruals / Research and Development~~
As part of the process of preparing our consolidated financial statements, we are required to estimate expenses resulting from our obligations under contracts with vendors, CROs and consultants and under clinical site agreements related to conducting our clinical trials. The financial terms of these contracts vary and may result in payment flows that do not match the period over which materials or services are provided under such contracts.
Our clinical trial 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. During a clinical trial, we will adjust the clinical expense recognition if actual results differ from estimates. We make estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. Our clinical trial accruals are partially dependent on the accurate reporting by the CRO and other third-party vendors. Although we do not expect estimates to differ materially from actual amounts, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that may be too high or too low for any reporting period.
Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered. We expense research and development costs as they are incurred.
~~Stock-Based Compensation~~
We account for the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award, determined on the date of grant. Significant assumptions utilized in determining the fair value of our stock options include the volatility rate, estimated term of the options, risk-free interest rate and forfeiture rate. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. We estimate forfeitures at the time of grant and make revisions, if necessary, at each reporting period if actual forfeitures differ from those estimates.
Non-employee stock-based compensation awards generally are immediately vested and have no future performance requirements by the non-employee and the total stock-based compensation charge is recorded in the period of the measurement date.
We estimate the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Black-Scholes option-pricing model requires the use of subjective assumptions that include the expected stock price volatility and the fair value of the underlying common stock on the date of grant. See Note 10 – Stock-Based Compensation for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted during the years ended December 31, 2019 and 2018.
All stock-based compensation costs are recorded in general and administrative or research and development costs in the consolidated statements of operations based upon the underlying individual’s role.
~~Income Taxes~~
As a result of our reverse acquisition, there was an ownership change as defined by Internal Revenue Code Section 382. Prior to the closing of the transaction, Promet was treated as a partnership for federal income tax purposes and thus was not subject to income taxes at the entity level and no provision or liability for income taxes has been included in the consolidated financial statements through October 4, 2017. In addition, Promet determined that it was not required to record a liability related to uncertain tax positions as a result of the requirements of ASC 740-10-25 ~~Income Taxes~~. The net deferred tax assets of Heatwurx were principally federal and state net operating loss carry forwards, which are significantly limited following an ownership change as defined by Internal Revenue Code Section 382.
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~~We account for income taxes in accordance with ASC 740~~ ~~Income Taxes,~~ which provides for deferred taxes using an asset and liability approach. We recognized deferred tax assets and liabilities for the expected future tax consequences of events that have been in our consolidated financial statements and income tax returns. Deferred tax assets and liabilities are determined based on the difference between our consolidated financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more-likely-than-not that a tax benefit will not be realized.
We account for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, we recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. Estimated interest and penalties related to uncertain tax positions are included as a component of interest expense and general and administrative expense, respectively. We had no unrecognized tax benefits or uncertain tax positions for any periods presented.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law. In December 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”) to provide clarification in implementing the TCJA when registrants do not have the necessary information available to complete the accounting for an element of the TCJA in the period of its enactment. SAB 118 provides for tax amounts to be classified as provisional and subject to remeasurement for up to one year from the enactment date for such elements when the accounting effect is not complete but can be reasonably estimated. We consider our estimates of the tax effects of the TCJA on the components of our tax provision to be reasonable and no provisional estimates subject to remeasurement will be necessary to complete the accounting.
We file U.S. federal income and California and Maryland state tax returns. There are currently no income tax examinations underway for these jurisdictions. However, tax years from and including 2016 remain open for examination by federal and state income tax authorities.
During the years ended December 31, 2019 and 2018, we incurred net operating losses of $3,960,592 and $4,667,848, respectively. We did not record any income tax benefit for the $1,205,811 ($331,809 tax effected) and $1,356,840 ($373,368 tax effected) of general and administrative expenses treated as deferred start-up expenditures for tax purposes for the years ended December 31, 2019 and 2018, respectively. We did not record any income tax benefit for the $283,189 of federal orphan drug tax credits for the year ended December 31, 2019. Additionally, we did not record any income tax benefit in 2017 for the $259,049 ($71,284 tax effected) of tax losses incurred in 2017 which resulted in tax loss carryforwards. The benefit was recognized in 2018 in the calculation of the valuation allowance. The 2017 net operating loss carry forwards are available for application against future taxable income for 20 years expiring in 2037. Tax losses incurred after December 31, 2017 have an indefinite carry forward period. However, the tax loss incurred after December 31, 2017 and carried forward can only offset 80 percent of future taxable income in any one year (other than in 2020), with any excess losses being carried forward indefinitely. We have recorded the benefit of our 2019 and 2018 net operating losses in our consolidated financial statements as a reduction in the deferred tax liability created by the future financial statement amortization of the intangible asset from the acquired Know-How. The benefit associated with the net operating loss carry forward will more-likely-than-not go unrealized unless future operations are successful except for their offset against the deferred tax liability created by the acquired CoNCERT license and “Know-How.”
~~Recently Issued Accounting Pronouncements~~
~~See Note 3 of our consolidated financial statements for new accounting pronouncements or changes to the recent accounting pronouncements during the year ended December 31, 2019.~~
~~Quantitative and Qualitative Disclosures about Market Risk~~
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate risks and inflation risks. Periodically, we maintain deposits in accredited financial institutions in excess of federally insured limits. We deposit our cash in financial institutions that we believe have high credit quality and have not experienced any losses on such accounts and do not believe we are exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
~~Interest Rate Risk~~
Our cash consists of cash in readily available checking accounts and short-term money market fund investments. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant.
~~Effects of Inflation~~
Inflation generally affects us by increasing our cost of labor and research and development contract costs. We do not believe inflation has had a material effect on our results of operations during the periods presented.
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~~BUSINESS~~
~~DESCRIPTION OF BUSINESS~~
~~Overview~~
~~Our mission is to develop drug products that improve the survival and/or quality of life for patients with highly unmet medical needs.~~
We are a clinical-stage biopharmaceutical company focused on the development of drug products that are intended to provide treatment for and improve the survival and/or quality of life of patients who have a highly unmet medical need condition or who have no alternative treatment. Our most advanced product candidate, PCS499, is an oral tablet that is a deuterated analog of one of the major metabolites of pentoxifylline (PTX or Trental^®). We have completed the patient portion of our Phase 2A trial for PCS499 and are in the process of closing the trial, and we plan to begin recruiting for a Phase 2B trial in 2021. We also have four newly licensed drugs (PCS12852, PCS6422, PCS11T and PCS100) and will begin developing these products once adequate funding has been obtained.
Our Strategy

Our ~~vision~~strategy is to develop our pipeline of NGC proprietary small molecule oncology drugs using our regulatory science approach 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 ~~high return on investment~~benefiting more patients while maintaining the mechanism of how the drug kills cancer cells. By combining these modified approved cancer treatments with our regulatory science approach and ~~lower risk~~our experience using the principles of ~~development failure.~~ 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 the existing counterparts of our NGC drugs, and more efficiently develop each drug.
Our ~~portfolio drugs are focused on treating patients who do not have adequate treatment options~~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 ~~their conditions and have some~~which a single positive pivotal trial demonstrating efficacy might provide enough evidence that the clinical ~~evidence supporting the efficacy~~benefits of the drug ~~whether it be evidence~~and its approval outweighs the risks associated with the drug itself or a drug with similar pharmacological properties. Given the prior success of our development team, the regulatory science approach that we employ not only allows us to develop drugs focused on FDA approval, but also allows us to select drugs for our portfolio which may have a greater chance for approval in a population of patients who need treatment options. The key pillars of our strategy to achieve our vision include:drug.
~~(i)~~ identifying drugs that have potential efficacy in patients with an unmet medical need, as demonstrated by some clinical evidence that the targeted pharmacology of the drug provides clinical efficacy in the targeted patient population;
~~(ii)~~ ~~identifying drug products that have been developed or approved for other indications but can be repurposed to treat those patients who have an unmet medical need; and~~
~~(iii)~~ ~~identifying drugs that can be quickly developed such that within 2-4 years, critical value-added clinical milestones can be achieved while advancing the drug closer to commercialization.~~

Our ~~Team~~Drug Pipeline

Our pipeline currently consists of NGC-Cap, NGC-Gem and NGC-Iri (also identified as PCS6422, PCS3117 and PCS11T, respectively) and two non-oncology drugs (PCS12852 and PCS499). The non-oncology drugs are not included in the pipeline chart above, as we are exploring our options for those drugs. A summary of each drug development efforts are driven by our extensive knowledge in applying rigorous regulatory science to the FDA approval pathway. We have assembled a seasoned management team with extensive experience in developing therapies, including advancing product candidates from preclinical research through clinical development and ultimately regulatory approval and commercialization. Together, our management team has completed over 30 FDA approvals. Our team is led by our Chairman and CEO David Young, Pharm.D., Ph.D. who has extensive experience in research, regulatory approval and business development and who served at Questcor for eight years as independent director and Chief Scientific Officer, helping lead to the ultimate sale of Questcor in 2014.provided below.

~~Our~~Next Generation Chemotherapy Pipeline

● Next Generation Capecitabine (NGC-Cap) is a combination of PCS6422 and a lower dose of the FDA-approved cancer drug capecitabine. PCS6422 is an orally administered irreversible inhibitor of the enzyme dihydropyrimidine dehydrogenase (DPD). DPD metabolizes 5-Fluorouracil (5-FU), the major metabolite of capecitabine and widely used itself as an intravenous chemotherapeutic agent in many types of cancer, to multiple metabolites classified as catabolites. These catabolites do not have any cancer-killing properties but frequently cause dose-limiting side effects that may require dose adjustments or discontinuation of therapy.
~~The table below summarizes our clinical product pipeline. We~~

An investment in our securities involves a high degree of risk. Before deciding whether to purchase our securities, including the shares of common stock offered by this prospectus, you should carefully consider the risks and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, any subsequent Quarterly Report on Form 10-Q and our other filings with the SEC, all of which are incorporated by reference herein. If any of these risks actually occur, our business, financial condition and results of operations could be materially and adversely affected and we may not be able to achieve our goals, the value of our securities could decline and you could lose some or all of your investment. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. If any of these risks occur, our business, results of operations or financial condition and prospects could be harmed. In that event, the market price of our common stock and the value of the warrants could decline, and you could lose all or part of your investment.

We have incurred recurring losses since inception and had an accumulated deficit of approximately $73.0 million as of September 30, 2023. At November 30, 2023, we had cash and cash equivalents totaling $5.4 million and a prepaid expense with the clinical research organization of our Phase 1B trial of $660,000. Assuming that we receive a minimum of $● of proceeds from this offering, we believe that the net proceeds from this offering, together with our cash on hand, will allow us to begin our Phase 2 trial of NGC-Cap and satisfy our capital needs until ● under our current business plan. In late 2024 or early 2025, we will need to raise additional capital to fund our operations and continue our planned development of our NGC drugs.

Following this offering, we will need to raise additional capital to complete the development efforts for NGC-Cap, NGC-Gem and/or NGC-Iri. If we are unable to raise capital when needed, we could be forced to delay, reduce or terminate certain of our development programs or other operations.

Following this offering, we will need to raise additional capital to fund our operations and continue to support our planned development of our next generation chemotherapy drugs. Our estimates of the amount of cash necessary to fund our activities may prove to be wrong and we could spend our available financial resources much faster than we currently expect. Our future funding requirements will depend on many factors, including, but not limited to:

We cannot be certain that additional funding will be available on acceptable terms, or at all. In addition, future debt financing into which we may enter may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions.

If we are unable to raise additional capital when required or on acceptable terms, we may be required to significantly delay, scale back or discontinue the development of our product candidates, restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our security holders losing some or all of their investment in us. In addition, our ability to achieve profitability or to respond to competitive pressures would be significantly limited.

In addition, if we are unable to secure sufficient capital to fund our operations, we may have to enter into strategic collaborations that could require us to share license rights with third parties in ways that we currently do not intend or on terms that may not be favorable to us or our security holders.

~~Pre-clinical studies~~We have incurred a history of operating losses and expect to continue to incur substantial costs for the foreseeable future. We are not currently profitable, and we may never achieve or sustain profitability. Our financial situation creates doubt whether we will continue as a going concern.

~~Before testing~~We have incurred recurring losses since inception and had an accumulated deficit of approximately $73.0 million as of September 30, 2023. We expect continued operating losses and negative cash flow from operations for the foreseeable future. We have never generated revenue from operations, nor do we have any ~~biological product candidate, including~~revenue under contract or any immediate sales prospects. We may never be able to obtain regulatory approval for the marketing of our drug candidates in any indication in the United States or internationally. Even if we obtain regulatory approval for any drug candidates, development expenses will continue to increase. These conditions raise substantial doubt about our ability to continue as a going concern, meaning that we may be unable to continue operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations. If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, or we may be unable to continue operations. Although we continue to pursue these plans, there can be no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

We will continue to expend substantial cash resources for the foreseeable future for the clinical development of our product candidates ~~in humans, the~~and development of any other indications and product candidates we may choose to pursue. These expenditures will include costs associated with manufacturing and clinical development, such as conducting clinical trials, manufacturing operations and product candidate ~~must undergo rigorous pre-clinical testing. The pre-clinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation~~supply. Because the conduct and stability, as well as studies to evaluate toxicity in animals, to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of pre-clinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of any clinical trial are highly uncertain, we cannot reasonably estimate the ~~pre-clinical studies,~~actual amounts necessary to successfully complete the development of our current and any future product candidates.

This offering is being made on a best efforts basis and we may sell fewer than all of the securities offered hereby and may receive significantly less in net proceeds from this offering. We believe that the net proceeds from this offering, together with ~~manufacturing information, analytical data, any available clinical data or literature~~our cash on hand, will satisfy our capital needs into ● under our current business plan. Following this offering, we will need to raise additional capital to fund our operations and ~~a proposed clinical protocol,~~continue to support our planned development and commercialization activities.

Because management has broad discretion as to the ~~FDA as part~~use of the ~~IND.~~

~~An IND is a request for authorization~~net proceeds from the FDA to administer an investigational product to humans and must become effective before human clinical trials may begin. Some long-term pre-clinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an INDthis offering, you may not ~~result in the FDA allowing clinical trials to commence.~~

~~Clinical trials~~agree with how we use them, and such proceeds may not be applied successfully.

~~The clinical stage~~Our management will have considerable discretion over the use of proceeds from this offering. We currently intend to use the net proceeds from this offering for continued research and development ~~involves~~for NCG-Cap, and for working capital, capital expenditures, and general corporate purposes, including investing further in research and development efforts. However, our management will have broad discretion in the ~~administration~~application of the ~~investigational product~~net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our operating results or enhance the value of our securities, or that you otherwise do not agree with. You will be relying on the judgment of our management concerning these uses and you will not have the opportunity, as part of your investment decision, to ~~healthy volunteers or patients under~~assess whether the ~~supervision~~proceeds are being used appropriately. The failure of qualified investigators, generally physicians not employed by, or under control of, the trial sponsor, in accordance with GCPs, which include the requirement that all research patients provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing,our management to apply these funds effectively could, among other things, result in unfavorable returns and uncertainty about our prospects, each of which could cause the ~~objectives~~price of our securities to decline.

Pending their use, we may invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the ~~clinical trial, dosing procedures, subject selection~~U.S. government. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

If you purchase our securities sold in this offering, you will experience immediate and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participatingsubstantial dilution in the ~~clinical trials are minimized and are reasonable~~net tangible book value of your shares. In addition, we may issue additional equity or convertible debt securities in ~~relation to anticipated benefits. The IRB also approves~~ the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about most clinical trials must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in some cases for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

~~Human clinical trials are typically conducted in three sequential phases,~~future, which may ~~overlap or be combined:~~

~~Post-approval trials, sometimes referred~~result in additional dilution to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow up. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of a biologics license application, or BLA.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. The FDA or the sponsor may suspend or terminate a clinical trial at any time, or the FDA may impose other sanctions on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk. Similarly, an IRB can refuse, suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Concurrently with clinical trials, companies usually complete additional pre-clinical studies and must also develop additional information about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.

~~Assuming successful completion~~Based on an assumed public offering price of $● per share and accompanying Common Warrant, the last reported sale price of our common stock on The Nasdaq Capital Market on ●, 202●, and our as adjusted net tangible book value per share as of September 30, 2023, if you purchase securities in this offering, you will experience an increase of $● per share in the net tangible book value of the ~~required clinical testing,~~common stock you purchase representing the ~~results~~difference between our as adjusted net tangible book value per share after giving effect to this offering and the assumed public offering price per share of common stock. The exercise of outstanding stock options and warrants, including those sold in this offering, will, however, result in dilution of your investment. In addition, to the extent we need to raise additional capital in the future and we issue additional shares of common stock or securities exercisable, convertible or exchangeable for our common stock, our then existing stockholders may experience dilution and the new securities may have rights senior to those of our common stock offered in this offering. See the section titled “Dilution” below for a more detailed illustration of the ~~pre-clinical studies~~dilution you would incur if you participate in this offering.

There is no public market for the Pre-Funded Warrants or Common Warrants offered by us.

There is no established public trading market for the Pre-Funded Warrants or Common Warrants being offered in this offering, and ~~clinical trials, together~~we do not expect such a market to develop. In addition, we do not intend to apply to list the Pre-Funded Warrants or Common Warrants on any national securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity of the Pre-Funded Warrants and Common Warrants will be limited.

Holders of Pre-Funded Warrants and Common Warrants purchased in this offering will have no rights as common stockholders until such holders exercise their Pre-Funded Warrants or Common Warrants and acquire our common stock.

Until holders of Pre-Funded Warrants or Common Warrants acquire shares of our common stock upon exercise of such warrants, holders of Pre-Funded Warrants and Common Warrants will have no rights with ~~detailed information relating~~respect to the ~~product’s chemistry, manufacture, controls~~shares of our common stock underlying such Pre-Funded Warrants and ~~proposed labeling, among other things, are submitted~~Common Warrants. Upon exercise of the Pre-Funded Warrants and Common Warrants, the holders will be entitled to exercise the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing”rights of a ~~standard NDA for a new molecular entity~~common stockholder only as to ~~review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision.~~

In addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulationmatters for which the ~~product is safe and effective. The FDA may, on its own initiative or at~~record date occurs after the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.

The FDA also may require submission of a REMS plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.

The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.

After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical trials or pre-clinical studies in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.exercise date.

~~Under~~The Common Warrants do not confer any rights of common stock ownership on their holders, such as voting rights or the ~~Orphan Drug Act,~~right to receive dividends, but rather merely represent the ~~FDA may grant orphan designation~~right to acquire shares of common stock at a ~~drug or biologic product intended to treat~~fixed price for a ~~rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in~~limited period of time. Moreover, following this offering, the ~~United States, or more than 200,000 individuals in~~market value of the ~~United States~~Common Warrants, if any, will be uncertain and ~~for which~~ there iscan be no ~~reasonable expectation~~assurance that the ~~cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales~~market value of the ~~product in~~Common Warrants will equal or exceed their imputed offering price. The Common Warrants will not be listed or quoted for trading on any market or exchange. There can be no assurance that the ~~United States. Orphan drug designation must be requested before submitting a BLA. After~~market price of our common stock will ever equal or exceed the ~~FDA grants orphan drug designation, the identity~~exercise price of the ~~therapeutic agent~~Common Warrants, and ~~its potential orphan use are disclosed publicly~~consequently, the Common Warrants may expire valueless.

The Common Warrants being offered by us in this offering have an exercise price of $● per share, subject to certain adjustments, and expire on the ~~FDA. Orphan drug designation~~five-year anniversary of the Initial Exercise Date, upon which date such Common Warrants will expire and have no further value. In the event that the market price of our common stock does not ~~convey any advantage in, or shorten~~exceed the ~~duration~~exercise price of the regulatory review and approval process. Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. If a product that has orphan designation subsequently receivesCommon Warrants during the ~~first FDA approval for~~period when they are exercisable, the ~~disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA~~Common Warrants may not ~~approve~~have any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety, by providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication that could be used “off-label” by physicians in the orphan indication, even though the competitor’s product is not approved in the orphan indication. Orphan drug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before we do of the same product, as defined by the FDA, for the same indication we are seeking, or if our product candidate is determined to be contained within the scope of the competitor’s product for the same indication or disease. If one of our products designated as an orphan drug receives marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity. Orphan drug status in the European Union, or EU, has similar, but not identical, requirements and benefits.value.

~~Expedited review~~Purchasers who purchase our securities in this offering pursuant to a securities purchase agreement may have rights not available to purchasers that purchase without the benefit of a securities purchase agreement.

In addition to rights and ~~approval~~remedies available to all purchasers in this offering under federal securities and state law, the purchasers that enter into a securities purchase agreement will also be able to bring claims of breach of contract against us. The ability to pursue a claim for breach of contract provides those investors with the means to enforce the covenants uniquely available to them under the securities purchase agreement including: (i) timely delivery of shares; (ii) agreement to not enter into variable rate financings for one year from closing, subject to certain exceptions; (iii) agreement to not enter into any financings for 60 days from closing; and (iv) indemnification for breach of contract.

This is a best efforts offering, with no minimum amount of securities required to be sold, and we may not raise the amount of capital we believe is required for our business plans, including our near-term business plans.

The placement agent has agreed to use its reasonable best efforts to solicit offers to purchase the securities in this offering. The placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities. There is no required minimum number of securities that must be sold as a condition to completion of this offering. Because there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, placement agent fees and proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth above. We may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell a sufficient number of securities to support our continued operations, including our near-term continued operations. Thus, we may not raise the amount of capital we believe is required for our operations in the short term and may need to raise additional funds, which may not be available or available on terms acceptable to us.

Because there is no minimum required for the offering to close, investors in this offering will not receive a refund in the event that we do not sell a sufficient number of securities to pursue the business goals outlined in this prospectus.

We have not specified a minimum offering amount nor have or will we establish an escrow account in connection with this offering. Because there is no escrow account and no minimum offering amount, investors could be in a position where they have invested in our company, but we are unable to fulfill our objectives due to a lack of interest in this offering. Further, because there is no escrow account in operation and no minimum investment amount, any proceeds from the sale of securities offered by us will be available for our immediate use, despite uncertainty about whether we would be able to use such funds to effectively implement our business plan. Investor funds will not be returned under any circumstances whether during or after the offering.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock and warrants will depend in part on the research and reports that securities or industry analysts publish about us or our business. We currently have limited research coverage by securities and industry analysts. If we fail to maintain adequate coverage by securities or industry analysts, the trading price for our stock would be negatively impacted. If one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Future sales of our common stock, warrants, or securities convertible into our common stock may depress our stock price.

The price of our common stock or warrants could decline as a result of sales of a large number of shares of our common stock or warrants or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

In addition, in the future, we may issue additional shares of common stock, warrants or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. We may also issue additional shares of common stock to satisfy the exercise of outstanding warrants. Any such issuances could result in substantial dilution to our existing stockholders and could cause the price of our common stock to decline.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future.

We do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings to finance the operation and expansion of our business. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

If we fail to regain compliance with the continued listing requirements of Nasdaq, our common stock and/or warrants may be delisted and the price of our common stock and/or warrants and our ability to access the capital markets could be negatively impacted.

On March 16, 2023 we received notice from Nasdaq indicating that we are not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq. We were provided a compliance period of 180 calendar days from the date of the notice, or until September 16, 2023, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). On September 19, 2023, Nasdaq notified us that that it granted an extension until March 18, 2024 to regain compliance with the minimum closing bid requirement. If we fail to evidence compliance by March 18, 2024, we may be subject to delisting. If Nasdaq determines to delist our securities, we will have the right to appeal to a Nasdaq hearings panel. There can be no assurance that we will be able to regain compliance with the applicable Nasdaq listing requirements.

We will continue to monitor the closing bid price of our common stock and may, if appropriate, consider available options, including implementation of a reverse stock split of our common stock, to regain compliance with the minimum closing bid requirement. If we seek to implement a reverse stock split in order to remain listed on Nasdaq, the announcement or implementation of such a reverse stock split could negatively affect the price of our common stock and/or warrants.

We must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum stockholders’ equity of $2.5 million and a minimum closing bid price of $1.00 per share or risk delisting, which could have a material adverse effect on our business. If our common stock and warrants are delisted from Nasdaq, it could materially reduce the liquidity of our common stock and warrants and result in a corresponding material reduction in the price of our common stock and warrants as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. If our common stock and warrants are delisted, it could be more difficult to buy or sell our common stock and warrants or to obtain accurate quotations, and the price of our common stock and warrants could suffer a material decline. Delisting could also impair our ability to raise capital on acceptable terms, if at all.

The sale of our common stock in this offering, including any shares issuable upon exercise of any Pre-Funded Warrants or Common Warrants, and any future sales of our common stock, or the perception that such sales could occur, may depress our stock price and our ability to raise funds in new stock offerings.

We may from time-to-time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such a discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. Sales of shares of our common stock in this offering, including any shares issuable upon exercise of any Pre-Funded Warrants or Common Warrants issued in this offering and in the public market following this offering, or the perception that such sales could occur, may lower the market price of our common stock and may make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable, or at all.

~~The FDA has various programs, including fast track designation, accelerated approval, priority review, and breakthrough therapy designation,~~Significant holders or beneficial holders of our common stock may not be permitted to exercise Pre-Funded Warrants that they hold.

A holder of a Pre-Funded Warrant will not be entitled to exercise any portion of any Pre-Funded Warrants which, ~~are intended~~upon giving effect to ~~expedite~~such exercise, would cause the aggregate number of shares of our common stock beneficially owned by the holder (together with its affiliates) to exceed 4.99% (or, at the election of the purchaser, 9.99%) of the number of shares of our common stock outstanding immediately after giving effect to the exercise. Such percentage may be increased or ~~simplify~~decreased by written notice by the ~~process~~holder of the Pre-Funded Warrants to any other percentage not in excess of 9.99%. Such increase or decrease will not be effective until the sixty-first (61st) day after such notice is delivered to us. As a result, you may not be able to exercise your Pre-Funded Warrants for shares of our common stock at a time when it would be financially beneficial for you to do so. In such circumstances, you could seek to sell your Pre-Funded Warrants to realize value, but you may be unable to do so in the absence of an established trading market for the development and FDA review of drugs that are intended for the treatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.

To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. The FDA may review sections of the NDA for a fast track product on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.

The FDA may give a priority review designation to drugs that offer major advances in treatment or provide a treatment where no adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFA guidelines. Under the new PDUFA agreement, these six- and ten-month review periods are measured from the “filing” date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible for fast track designation are also likely to be considered appropriate to receive a priority review.

In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures.Pre-Funded Warrants.

This prospectus and the documents incorporated by reference herein contain forward-looking statements. All statements other than statements of historical facts contained in this prospectus and the documents incorporated by reference herein are forward-looking statements, including statements regarding our future results of operations and financial position, business strategy, regulatory developments, research and development costs, the timing and likelihood of commercial success, the potential to develop future product candidates, plans and objectives of management for future operations, and future results of current and anticipated products. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. This prospectus and the documents incorporated by reference herein also contain estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus and the documents incorporated by reference herein are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions, which we discuss in greater detail in the documents incorporated by reference herein, including under the ~~provisions~~heading “Risk Factors” and elsewhere in this prospectus. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this prospectus or the documents incorporated by reference herein, whether as a result of any new information, future events, changed circumstances or otherwise. For all forward-looking statements, we claim the protection of the ~~Food~~safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

You should read this prospectus and ~~Drug Administration Safety~~the documents that we reference in this prospectus and ~~Innovation Act, passed~~have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

We estimate that the net proceeds from this offering will be approximately $●, based on an assumed public offering price of $● per share of common stock, the last reported sale price of our common stock on the Nasdaq Capital Market on ●, 202●, and assuming the sale of ● Common Warrants and no sale of any Pre-Funded Warrants in ~~July 2012,~~this offering after deducting the placement agent fees and estimated offering expenses payable by us. However, because this is a ~~sponsor can request designation~~best efforts offering with no minimum number of ~~a product candidate~~securities or amount of proceeds as a ~~“breakthrough therapy.” A breakthrough therapy is defined as~~condition to closing, the actual offering amount, the placement agent’s fees and net proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth on the cover page of this prospectus, and we may not sell all or any of the securities we are offering. As a ~~drug that is intended, alone or~~result, we may receive significantly less in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.net proceeds.

~~Even if~~We currently intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, for continued research and development for NCG-Cap, and working capital and general corporate purposes. We may also use a ~~product qualifies~~portion of the net proceeds, together with our existing cash and cash equivalents, to in-license, acquire, or invest in complementary businesses, technologies, products or assets; however, we have no current commitments or obligations to do so.

We believe, based on our current operating plan, that our existing cash and cash equivalents together with the net proceeds from this offering and assuming no sale of any pre-funded warrants and no exercise of the warrants, will be sufficient to fund our operations into ●. However, the amounts and timing of our actual expenditures will depend on numerous factors, including the cost and timing to complete our Phase 1B trial; costs associated with the first part of our planned Phase 2 trial for NGC-Cap; any costs we incur related to NGC-Gem and NGC-Iri; for general and administrative costs to support operations; and other factors as described under “Risk Factors” in this prospectus and in the documents incorporated by reference herein. We therefore cannot estimate with certainty the amount of net proceeds to be used for the purposes described above. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the net proceed and it may be necessary to reallocate funds. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

If we have based our estimates on assumptions that are incorrect, or we increase our anticipated clinical trials, then we could use our available capital resources sooner than we currently expect. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these ~~programs,~~sources.

Pending our use of the ~~FDA may later decide~~net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

Each $● increase (decrease) in the assumed public offering price of $● per share, the last reported sale price of our common stock on the Nasdaq Capital Market on ●, 202●, and accompanying Common Warrant, would increase (decrease) the net proceeds to us by approximately $● million, assuming that the ~~product no longer meets~~number of shares of common stock, Common Warrants and Pre-Funded Warrants offered by us, as set forth on the ~~conditions for qualification or decide that~~cover page of this prospectus, remains the ~~time period for FDA review or approval will not be shortened. Furthermore, fast track designation, priority review,~~same, and ~~breakthrough therapy designation do not change~~after deducting the ~~standards for approval, but may expedite the development or approval process.~~estimated placement agent discounts and commissions and estimated offering expenses payable by us. We may ~~explore some~~also increase or decrease the number of ~~these opportunities for our product candidates~~shares we are offering. Each increase (decrease) of ● shares in the number of shares of common stock (or common stock underlying Pre-Funded Warrants) and accompanying Common Warrants offered by us, as ~~appropriate.~~set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by approximately $● million, assuming the assumed public offering price per share of common stock and accompanying Common Warrant remains the same, and after deducting the estimated placement agent discounts and commissions and estimated offering expenses payable by us.

~~Drugs manufactured~~We have never declared or ~~distributed pursuant~~paid any cash dividends on our capital stock. We intend to ~~FDA approvals are~~retain future earnings, if any, to finance the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors our Board of Directors deems relevant, and subject to ~~pervasive and continuing regulation by~~ the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual user fee requirements forrestrictions contained in any ~~marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.~~future financing instruments.

The ~~FDA may impose a number~~following table sets forth our cash and cash equivalents and capitalization as of ~~post-approval requirements~~September 30, 2023 as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:follows:

You should read this information in conjunction with our consolidated financial statements and notes thereto incorporated by reference into this prospectus.

Large accelerated filer	~~[ ]~~	☐	Accelerated filer	~~[ ]~~	☐
Non-accelerated filer	~~[ ]~~	☒	Smaller reporting company	~~[X]~~	☒
			Emerging growth company	~~[ ]~~	☐

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~~Page~~About this Prospectus	1
Prospectus Summary	12
~~Summary Historical Consolidated Financial Data~~The Offering	8
Risk Factors	10
~~Cautionary~~Special Note Regarding Forward-Looking Statements	3216
Use of Proceeds	3417
~~Market for Common Equity and~~ Dividend Policy	3518
Capitalization	3619
Dilution	37
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~20	38
~~Business~~	50
~~Management~~	70
~~Executive and Director Compensation~~	76
~~Director Compensation~~	79
~~Transactions with Related Persons, Promoters and Certain Control Persons~~	80
~~Principal Stockholders~~	81
Description of ~~Our Securities~~Capital Stock	8321
~~Shares Eligible for Future Sale~~Description of Securities We Are Offering	8725
Material U.S. Federal Income Tax Consequences ~~to Non-U.S. Holders of Our Common Stock~~	8929
~~Underwriting~~Plan of Distribution	9235
Legal Matters	9637
Experts	9637
Incorporation of Certain Information by Reference	37
Where You Can Find More Information	96
~~Index to Consolidated Financial Statements~~38	~~F-1~~

Issuer		Processa Pharmaceuticals, Inc.

Shares of common stock being offered by us		Up to ● shares of common stock at an assumed combined public offering price of $● per share which is the last reported sales price of our common stock on The Nasdaq Capital Market on ●, 202● and assuming no sale of any Pre-Funded Warrants.

Pre-Funded Warrants offered by us		We are also offering to each purchaser whose purchase of shares of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the investor, 9.99%) of our outstanding common stock immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, Pre-Funded Warrants, in lieu of shares of common stock that would otherwise result in the purchaser’s beneficial ownership exceeding 4.99% (or, at the election of the investor, 9.99%) of our outstanding common stock. Subject to limited exceptions, a holder of Pre-Funded Warrants will not have the right to exercise any portion of its Pre-Funded Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. Each Pre-Funded Warrant will be exercisable upon issuance for one share of our common stock and will expire when exercised in full. The purchase price of each Pre-Funded Warrant will equal the public offering price per share of common stock and accompanying Common Warrant less $0.0001, and the exercise price of each Pre-Funded Warrant will be $0.0001 per share. This offering also relates to the shares of common stock issuable upon exercise of any Pre-Funded Warrants sold in this offering. The exercise price and number of shares of common stock issuable upon exercise will be subject to certain further adjustments as described herein. See “Description of Securities” on page 25 of this prospectus. For each Pre-Funded Warrant we sell, the number of shares of common stock we are offering will be decreased on a one-for-one basis. Because a Common Warrant to purchase one share of our common stock is being sold together in this offering with each share of common stock and, in the alternative, each Pre-Funded Warrant to purchase one share of common stock, the number of Common Warrants sold in this offering will not change as a result of a change in the mix of the shares of our common stock and Pre-Funded Warrant sold.

Common Warrants offered by us		Each share of common stock or pre-funded warrant is being offered together with one Common Warrant to purchase one share of common stock. The Common Warrants will have an exercise price of $● per share (●% of the combined public offering price per share of common stock and accompanying warrants) and will be exercisable beginning on the effective date of the Warrant Stockholder Approval, provided however, if the Pricing Conditions are met, the Common Warrants will be exercisable upon the Initial Exercise Date. The Common Warrants will expire on the five-year anniversary of the Initial Exercise Date. See “Description of Securities We Are Offering” for additional information.

Placement Agent Warrants		We have agreed to issue to the placement agent or its designees, warrants, or the Placement Agent Warrants, to purchase up to 4.0% of the aggregate number of shares of common stock sold in this offering (including the shares of common stock issuable upon the exercise of the Pre-Funded Warrants, but not including shares of common stock sold to the Company’s current directors and officers) at an exercise price equal to 125% of the public offering price per share and accompanying warrants to be sold in this offering. The Placement Agent Warrants will be exercisable upon issuance and will expire three (3) years from the commencement of sales under this offering. See “Plan of Distribution” for additional information

Common Stock Outstanding prior to this Offering ⁽¹⁾		24,631,474 shares

Common Stock to be Outstanding After this Offering ⁽¹⁾		● shares assuming we sell only shares of common stock and no Pre-Funded Warrants.

Use of Proceeds		We estimate that the net proceeds of this offering assuming no exercise of the warrants, after deducting placement agent fees and estimated offering expenses, will be approximately $●, assuming we sell only shares of common stock and no pre-funded warrants and assuming no exercise of the warrants. We intend to use the net proceeds from the offering to begin a Phase 2 clinical trial of NGC-Cap and for working capital and other general corporate purposes. We may also use a portion of the net proceeds, together with our existing cash and cash equivalents, to in-license, acquire, or invest in complementary businesses, technologies, products or assets; however, we have no current commitments or obligations to do so. Assuming that we receive a minimum of $● of proceeds from this offering, we believe that the net proceeds from this offering, together with our cash on hand, will satisfy our capital needs until ● under our current business plan. In late 2024 or early 2025, we will need to raise additional capital to fund our operations and continue our planned development of our NGC drugs. See the section titled “Use of Proceeds” for more information.

Risk Factors		Investing in our securities involves a high degree of risk. For a discussion of factors to consider before deciding to invest in our securities, you should carefully review and consider the “Risk Factors” section of this prospectus, as well as the risk factors described or referred to in any documents incorporated by reference in this prospectus, and in any applicable prospectus supplement.

Market Symbol and trading		Our common stock is listed on The Nasdaq Capital Market under the symbol “PCSA.” There is no established trading market for any of the warrants being issued and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the Common Warrants or Pre-Funded Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Common Warrants and Pre-Funded Warrants will be limited.

	As of September 30, 2023
	Actual			As adjusted
Cash and cash equivalents	$	6,860,672		$
Preferred stock, $0.0001 par value: 1,000,000 shares authorized, no shares issued or outstanding		-			-
Common stock $0.0001 par value: 100,000,000 shares authorized, 24,731,474 issued and 24,631,474 outstanding, actual; ● shares issued and outstanding, as adjusted⁽¹⁾		2,473
Additional paid-in capital		80,429,556
Treasury stock at cost – 100,000 shares		(300,000	)		(300,000	)
Accumulated equity		(72,964,150	)

Total stockholders’ equity		7,167,879

Total capitalization	$			$

~~(1)~~	~~Includes shares that the underwriters have the option to purchase to cover over-allotments, if any.~~

~~(2)~~	~~Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.~~

~~(3)~~	~~Previously paid.~~

(1)	We have agreed to pay the placement agent a cash fee equal to 7.0% of the gross proceeds raised in this offering (other than proceeds received from the Company’s current directors and officers). We have also agreed to reimburse the placement agent for certain of its offering related expenses, including reimbursement for non-accountable expenses in legal fees and expenses in the amount of up to $112,500, and for its clearing expenses in the amount of $15,950. In addition, we have agreed to issue the placement agent or its designees warrants (“Placement Agent Warrants”) to purchase a number of shares of common stock equal to 4.0% of the shares of common stock sold in this offering (including the shares of common stock issuable upon the exercise of the Pre-Funded Warrants, but not including shares of common stock sold to current directors and officers of the Company), at an exercise price of $● per share, which represents 125% of the public offering price per share and accompanying warrant. For a description of compensation to be received by the placement agent, see “Plan of Distribution” for more information

(2)	Because there is no minimum number of securities or amount of proceeds required as a condition to closing in this offering, the actual public offering amount, placement agent fees, and proceeds to us, if any, are not presently determinable and may be substantially less than the total maximum offering amounts set forth above. For more information, see “Plan of Distribution.”

	Six Months Ended June 30,						Year Ended December 31,
	2020			2019			2019			2018
Operating expenses
Research and development	$	928,855		$	1,211,655		$	2,320,573		$	3,085,317
General and administrative		859,255			807,837			1,614,909			1,439,623

Operating loss		(1,788,110	)		(2,019,492	)		(3,935,482	)		(4,524,940	)

Other income (expense)
Interest income		846			9,383			11,548			18,297
Interest expense		(36,450	)		(10,702	)		(36,658	)		(161,205	)

Net operating loss before income tax benefit		(1,823,714	)		(2,020,811	)		(3,960,592	)		(4,667,848	)
Income tax benefit		215,964			300,901			602,716			902,801

Net loss and comprehensive loss	$	(1,607,750	)	$	(1,719,910	)	$	(3,357,876	)	$	(3,765,047	)

Net loss per share attributable to common stockholders - basic and diluted	$	(0.29	)	$	(0.31	)	$	(0.70	)	$	(0.71	)
Weighted average common stock outstanding - basic and diluted		5,515,447			5,525,009			5,525,635			5,332,141

	As of June 30, 2020
	Actual			Pro Forma ⁽¹⁾			Pro Forma, As Adjusted ⁽²⁾
Balance Sheet Data:
Cash and cash equivalents	$	452,654		$	552,654
Total Assets		10,011,456			10,111,456
Working Capital (Deficit) ⁽³⁾		(1,321,086	)		(717,063	)
2019 Senior convertible debt ⁽⁴⁾		859,102			859,102
Line of Credit Payable		504,023			-
Total Liabilities ⁽⁵⁾		3,418,436			2,914,413
Total Stockholders’ Equity		6,593,020			7,197,043

~~(1)~~	The pro forma consolidated balance sheet data gives effect to the following adjustments, referred to herein as the “Pro Forma Adjustments,” certain of which are based on an assumed public offering price of $8.45 per share, which represents the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020: (i) the issuance of 176,366 shares of common stock to stockholders who purchased common stock units in our 2018 Private Placement Transactions as a result of full ratchet anti-dilution provisions; (ii) the assumed conversion of the $700,000 principal amount outstanding under the LOC Agreement with DKBK expected to occur simultaneously with the closing of this offering into 92,574 shares of common stock; (iii) the issuance of 295,858 shares of common stock to Aposense; (iv) the issuance of 236,686 shares of common stock to Yuhan; and (v) the issuance of 500,000 shares of common stock and payment of $100,000 to Elion. The number of shares of common stock outstanding after giving effect to the Pro Forma Adjustments would be 6,816,931.

~~(2)~~	Assumes the Pro Forma Adjustments and further gives effect to the issuance of 2,150,000 shares of common stock in this offering and the receipt of $ in net proceeds. The number of outstanding shares on a pro forma as adjusted basis would be .

~~(3)~~	~~We define working capital as current assets less current liabilities.~~

~~(4)~~	~~Includes accrued interest totaling $54,459 and a discount of $357.~~

~~(5)~~	~~Our total liabilities at June 30, 2020 include a net deferred tax liability related to our acquisition of the license agreement for PCS499 from CoNCERT Pharmaceuticals, Inc. totaling $1,315,666.~~

	●	~~demonstration of clinical safety and efficacy;~~

	●	~~relative convenience, dosing burden and ease of administration;~~

	●	~~the prevalence and severity of any adverse effects;~~

	●	~~the willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies;~~

	●	~~efficacy of our product candidates compared to competing products;~~

	●	~~the introduction of any new products that may in the future become available targeting indications for which our product candidates may be approved;~~

	●	~~new procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show utility;~~

	●	~~pricing and cost-effectiveness;~~

	●	~~the inclusion or omission of our product candidates in treatment guidelines;~~

	●	~~the effectiveness of our own or any future collaborators’ sales and marketing strategies;~~

	●	~~limitations or warnings contained in approved labeling from regulatory authorities;~~

	●	our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and

	●	~~the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals.~~

	●	~~withdrawal of clinical trial participants;~~

	●	~~termination of clinical trial sites or entire trial programs;~~

	●	~~the inability to commercialize our product candidates;~~

	●	~~decreased demand for our product candidates;~~

	●	~~impairment of our business reputations;~~

	●	~~product recall or withdrawal from the market or labeling, marketing or promotional restrictions;~~

	●	~~substantial costs of any related litigation or similar disputes;~~

	●	~~distractions of management’s attention and other resources from our primary business;~~

	●	~~substantial monetary awards to patients or other claimants against us that may not be covered by insurance; or~~

	●	~~loss of revenue.~~

●	~~manage all our development efforts effectively, especially our clinical trials;~~

●	~~integrate additional management, administrative, scientific, operation and regulatory personnel;~~

●	~~maintain sufficient administrative, accounting and management information systems and controls; and~~

●	~~hire and train additional qualified personnel.~~

	●	~~relatively low trading volume, which can result in significant volatility in the market price of our common stock based on a relatively smaller number of trades and dollar amount of transactions;~~

	●	~~changes in estimates or recommendations by securities analysts, if any, who cover our common stock;~~

	●	~~the timing and results of our current and any future preclinical or clinical trials of our product candidates;~~

	●	~~the entry into or termination of key agreements, including, among others, key collaboration and license agreements;~~

	●	~~the results and timing of regulatory reviews relating to the approval of our product candidates;~~

	●	~~the initiation of, material developments in, or conclusion of, litigation to enforce or defend any of our intellectual property rights;~~

	●	~~failure of any of our product candidates, if approved, to achieve commercial success;~~

	●	~~general and industry-specific economic conditions that may affect our research and development expenditures;~~

	●	~~the results of clinical trials conducted by others on products that would compete with our product candidates;~~

	●	~~issues in manufacturing our product candidates or any approved products;~~

	●	~~the introduction of technological innovations or new commercial products by our competitors;~~

	●	~~developments or disputes concerning patent applications, issued patents or other proprietary rights;~~

	●	~~future sales of our common stock by us, our insiders or our other stockholders;~~

	●	~~a negative outcome in any litigation or potential legal proceeding.~~

	●	~~additions and departures of key personnel;~~

	●	~~negative publicity or announcements regarding regulatory developments relating to our products;~~

	●	~~actual or anticipated fluctuations in our financial condition and operating results, including our cash and cash equivalents balance, operating expenses, cash burn rate or revenue levels;~~

	●	~~our filing for protection under federal bankruptcy laws; or~~

	●	~~the other factors described in this “Risk Factors” section.~~

	●	~~delaying, deferring or preventing a change in control;~~

	●	~~entrenching our management and the Board of Directors;~~

	●	~~impeding a merger, consolidation, takeover or other business combination involving us that other stockholders may desire;~~

	●	~~and/or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.~~

	●	~~providing that the number of members of our Board is limited to a range fixed by our bylaws;~~
	●	~~establishing advance notice requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings; and~~
	●	~~authorizing the issuance of “blank check” preferred stock, which could be issued by our Board of Directors to issue securities with voting rights and thwart a takeover attempt.~~

	●	~~our use of the net proceeds from this offering;~~

	●	~~our liquidity and working capital requirements, including cash requirements over the next 12 months;~~

	●	~~our ability to obtain funding for our operations;~~

	●	~~the impact of the COVID-19 pandemic on our business, operations or ability to obtain funding;~~

	●	~~our ability to obtain and maintain regulatory approval of PCS499 and/or our other product candidates;~~

	●	~~our ability to contract with third-party suppliers, manufacturers and other service providers and their ability to perform adequately;~~

	●	~~the potential market size, opportunity and growth potential for PCS499 and/or our other product candidates, if approved;~~

	●	~~our ability to build our own sales and marketing capabilities, or seek collaborative partners, to commercialize PCS499 and/or our other product candidates, if approved;~~

	●	~~the initiation, timing, progress and results of our pre-clinical studies and clinical trials, and our research and development programs;~~

	●	~~our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;~~

	●	~~our ability to advance product candidates into, and successfully complete, clinical trials;~~

	●	~~our ability to recruit and enroll suitable patients in our clinical trials;~~

	●	~~the timing or likelihood of the accomplishment of various scientific, clinical, regulatory filings and approvals and other product development objectives;~~

	●	~~the pricing and reimbursement of our product candidates, if approved;~~

	●	~~the rate and degree of market acceptance of PCS499 and/or our other product candidates by physicians, patients, third-party payors and others in the medical community, if approved;~~

	●	~~the implementation of our business model, strategic plans for our business, product candidates and technology;~~

	●	~~the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;~~

	●	~~developments relating to our competitors and our industry;~~

	●	~~the accuracy of our estimates regarding expenses, capital requirements and needs for additional financing; and~~

	●	~~our financial performance.~~

	●	~~on an actual basis.~~

	●	on a pro forma basis after giving effect to the Pro Forma Adjustments based on an assumed public offering price of $8.45 per share, the last reported sales price of our common stock as reported on the OTCQB on September 15, 2020.

	●	~~on a pro forma basis, as adjusted to give further effect to the issuance by us of 2,150,000 shares of our common stock in this offering.~~

	As of June 30, 2020
	Actual			Pro forma			Pro forma, as adjusted
Cash and cash equivalents	$	452,654		$	552,654		$
2019 Senior Convertible Notes and accrued interest		859,102			859,102
Line of credit payable and accrued interest		504,023			-
Preferred stock, $0.0001 par value: 1,000,000 shares authorized, no shares issued or outstanding		-			-
Common stock $0.0001 par value: 30,000,000 shares authorized, 5,514,447 shares issued and outstanding, actual; 6,816,931 shares issued and outstanding, pro forma and shares issued and outstanding pro forma, as adjusted⁽¹⁾		552			683
Additional paid-in capital		19,182,228			28,611,120
Accumulated equity		(12,589,760	)		(21,414,760	)

Total stockholders’ equity		6,593,020			7,197,043

Total capitalization	$	7,956,145		$	8,056,145		$

Assumed public offering price per share				$	8.45
Historical net tangible book value per share as of June 30, 2020, before giving effect to the offering	$	(0.24	)
Pro forma change in net tangible book value per share as of June 30, 2020		0.13
Pro forma net tangible book value as of June 30, 2020, before giving effect to the offering		(0.11	)
Increase in net tangible book value per share from new investors participating in this offering		1.84
Pro forma, as adjusted net tangible book value per share after this offering					1.73
Dilution in net tangible book value per share to new investors participating in this offering					6.72

	~~(i)~~	to identify drugs that have potential efficacy in patients with an unmet medical need, as demonstrated by some clinical evidence that the targeted pharmacology of the drug provides clinical efficacy in the targeted patient population, including published case studies or clinical experience;

	~~(ii)~~	~~to identify drug products that have been developed or approved for other indications but can be repurposed to treat those patients who have an unmet medical need; and~~

	~~(iii)~~	to identify drugs that can be quickly developed such that within 2-4 years critical value added clinical milestones can be achieved (for example, a pivotal study can be completed in 2 to 4 years or enough clinical data can be obtained to demonstrate the value of the asset to a future licensing partner) while advancing the drug closer to the submission of an NDA to the FDA, or to license the drug to a potential strategic partner just prior to a more expensive and time consuming pivotal study.

	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2020			2019			Change			2020			2019			Change
Operating Expenses
Research and development expenses	$	427,109		$	726,904		$	(299,795	)	$	928,855		$	1,211,655		$	(282,800	)
General and administrative expenses		374,878			410,072			(35,194	)		859,255			807,837			51,418

Operating Loss		(801,987	)		(1,136,976	)					(1,788,110	)		(2,019,492	)
Other Income (Expense)
Interest expense		(19,280	)		(6,102	)		(13,178	)		(36,450	)		(10,702	)		(25,748	)
Interest income		18			3,398			(3,380	)		846			9,383			(8,537	)
Net Operating Loss Before Income Tax Benefit		(821,249	)		(1,139,680	)					(1,823,714	)		(2,020,811	)
Income Tax Benefit		87,835			170,602			(82,767	)		215,964			300,901			(84,937	)
Net Loss	$	(733,414	)	$	(969,078	)				$	(1,607,750	)	$	(1,719,910	)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Amortization of intangible assets	$	198,832	$	198,832	$	397,664	$	397,664
Research and development salaries and benefits		114,579		160,992		254,851		319,848
Preclinical, clinical trial and other costs		113,698		367,080		276,340		494,143
Total	$	427,109	$	726,904	$	928,855	$	1,211,655

	Year ended
	December 31,
	2019			2018
Operating Expenses
Research and development expenses	$	2,320,573		$	3,085,317
General and administrative expenses		1,614,909			1,439,623

Operating Loss		(3,935,482	)		(4,524,940	)

Other Income (Expense)
Interest expense		(36,658	)		(161,205	)
Interest income		11,548			18,297

Net Operating Loss Before Income Tax Benefit		(3,960,592	)		(4,667,848	)
Income Tax Benefit		602,716			902,801

Net Loss	$	(3,357,876	)	$	(3,765,047	)

	Year ended December 31,
	2019		2018
Amortization of intangible assets	$	795,328	$	621,647
Research and development salaries and benefits		742,254		650,702
Preclinical, clinical trial and other costs		782,991		1,812,968
Total	$	2,320,573	$	3,085,317

	●	Starting in August 2019, we began deferring the salaries of certain employees. At June 30, 2020 we have deferred a total of $210,800 (which has been included in accrued expenses on the condensed consolidated balance sheet) until such time as we have raised sufficient funding.

	●	On September 20, 2019, we entered into two separate LOC Agreements with current stockholders and related parties DKBK and CorLyst, which provide a revolving commitment of up to $700,000 each ($1.4 million total). Under the LOC Agreements, all funds borrowed will bear an 8% annual interest rate. The Lenders have the right to convert all or any portion of the debt and interest into shares of our common stock. Our CEO is also the CEO and Managing Member of both Lenders. DKBK directly holds 16,166 shares of our common stock, and CorLyst beneficially owns 1,095,649 shares. In April and June 2020, we drew $500,000 under the LOC Agreement with DKBK. On July 21, 2020, we drew an additional $200,000, bringing the total amount drawn under the LOC Agreement with DKBK to $700,000. We have not drawn any funds under the LOC Agreement with CorLyst.

	●	~~In December 2019, we closed a bridge financing raising $805,000 through the issuance of 2019 Senior Notes to accredited investors.~~

	●	~~In May 2020, we received $162,459 from a loan with Bank of America under the Paycheck Protection Program.~~

	●	~~Through this offering, we intend to undertake an underwritten capital raise and, upon completion of this offering, list our common stock to the Nasdaq Capital Market.~~

	●	~~the timing and extent of spending on our research and development efforts, including with respect to PCS499 and our other product candidates;~~

	●	~~the scope, rate of progress, results and cost of our clinical trials, preclinical testing and other related activities;~~

	●	~~the time and costs involved in obtaining regulatory and marketing approvals in multiple jurisdictions for our product candidates that successfully complete clinical trials;~~

	●	~~the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;~~

	●	~~the emergence of competing technologies or other adverse market developments;~~

	●	~~the introduction of new product candidates and the number and characteristics of product candidates that we pursue; and~~

	●	~~the potential acquisition and in-licensing of other technologies, products or assets.~~

	●	~~obtain and maintain international and domestic patent~~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 NGC-Gem is metabolized to its active metabolite through a different enzyme system than gemcitabine. We continue to evaluate the potential use of NGC-Gem in patients with pancreatic and other ~~legal protections for~~potential cancers and to evaluate ways to identify patients who are more likely to respond to NGC-Gem than gemcitabine. We plan to meet with the ~~proprietary technology, inventions and improvements we consider important~~FDA in 2024 to ~~our business;~~

	●	~~prosecute and defend our future patents, once obtained;~~

	●	~~preserve confidentiality of our own and our licensed methods, processes and know-how; and~~

	●	~~operate without infringing the patents and proprietary rights of other parties.~~

	●	4%discuss potential trial designs including implementation of the ~~net sales~~Project Optimus initiative as part of the ~~portion less than or equal~~design. Similar to ~~$100 million;~~

	●	~~5% of the net sales of the portion greater than $100 million and less than or equal to $500 million;~~

	●	~~6% of the net sales of the portion greater than $500 million and less than or equal to $1.0 billion;~~

	●	~~10% of the net sales of the portion greater than $1 billion if such sales are made by us or our affiliates; and with respect to net sales made by us or any of our affiliates,~~NGC-Cap, we will ~~pay 10% of net sales and with respect~~need to ~~sales by our sublicensees,~~obtain additional funding before we ~~will pay~~can begin the ~~greater of (i) 6% or (ii) 50% of all payment received by us with respect to such sublicensee.~~Phase 2 trial for NGC-Gem.

	●	~~completion~~141,611 shares of ~~pre-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;~~our common stock issuable upon exercise of outstanding options, which have a weighted average exercise price of $18.22 per share;

	●	~~submission to the FDA~~4,554,867 shares of ~~an IND application,~~common stock issuable for restricted stock units (RSUs) (of which ~~must become effective before human clinical trials may begin;~~

	●	~~approval by an independent IRB, at each clinical site before each trial may be initiated;~~2,291,923 are vested) issuable upon meeting distribution restrictions;

	●	~~performance~~3,366,480 shares of ~~adequate and well-controlled human clinical trials in accordance with good clinical practices (GCP) requirements to establish the safety and efficacy~~common stock issuable upon exercise of ~~the proposed drug product for each indication;~~outstanding vested common warrants at a weighted-average exercise price of $1.61 per share;

	●	~~submission~~467,735 shares of common stock reserved for issuance and available for future grant under our 2019 Omnibus Incentive Plan; and

	●	the ~~FDA~~timing, rate of ~~an NDA;~~progress and cost of any clinical trials and other manufacturing/product development activities for our current and any future product candidates that we develop, in-license or acquire;

	●	~~satisfactory completion~~the results of ~~an FDA advisory committee review, if applicable;~~the clinical trials for our product candidates;

	●	~~satisfactory completion~~the timing of, anand the costs involved in, FDA ~~inspection~~approval and any foreign regulatory approval of ~~the manufacturing facility or facilities~~our product candidates, if at which the product is produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;all;

	●	~~FDA review~~the number and ~~approval of the NDA, including consideration of the views~~characteristics of any ~~FDA advisory committee, prior~~additional future product candidates we develop or acquire;

	●	our ability to establish and maintain strategic collaborations, licensing, co-promotion or other arrangements and the terms and timing of such arrangements;

	●	the degree and rate of market acceptance of any approved products;

	●	costs under our third-party manufacturing and supply arrangements for our current and any future product candidates and any products we commercialize;

	●	costs and timing of completion of any additional outsourced commercial ~~marketing~~manufacturing or ~~sale~~supply arrangements that we may establish;

	●	costs of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights associated with our product candidates;

	●	costs associated with prosecuting or defending any litigation that we are or may become involved in and any damages payable by us that result from such litigation;

	●	costs of operating as a public company;

	●	the ~~drug in the United States;~~emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments;

	●	costs associated with any acquisition or in-license of products and product candidates, technologies or businesses; and

	●	~~compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation~~personnel, facilities and ~~Mitigation Strategy (REMS) or to conduct a post-approval study.~~equipment requirements.