Processa Pharmaceuticals, Inc. (NASDAQ:PCSA) Q3 2021 Earnings Conference Call November 11, 2021 5:30 PM ET Company Participants Jim Stanker – Chief Financial Officer David Young – Chief Executive Officer Conference Call Participants Robin Garner – Craig-Hallum François Brisebois – Oppenheimer Aydin Huseynov – Benchmark Julian Harrison – BTIG Operator Greetings, and welcome to Processa Pharmaceuticals Third Quarter 2021 Earnings Conference Call and Corporate Update. At this time, all participants are in a li ...

Pipeline Highlights - PCS499 Phase 2B针对溃疡性坏死性类脂质病(uNL)的患者已入组2名，1名患者正在筛查，10名患者预筛选失败，3/9个试验点激活，预计2022年上半年进行中期分析，2022年下半年进行最终分析，并计划于2023年启动Phase 3 SPA[6] - PCS12852 Phase 2A针对胃轻瘫、便秘的IND正在审查和最终确定，预计2021年第三季度提交Phase 2A IND，2022年上半年首次患者入组，2022年下半年至2023年上半年完成最终分析[6] - PCS3117 Phase 2B针对胰腺癌、非小细胞肺癌的生物标志物检测实验室正在选择中，方案正在准备中，预计2022年上半年完成生物标志物检测，2022年下半年首次患者入组Phase 2B，2023-2024年启动Phase 3 SPA[6] - PCS6422 Phase 1B针对转移性结直肠癌、乳腺癌的患者已入组1名，1名患者预筛选失败，2名患者在筛选等候室，4/5个试验点激活，预计2021年第四季度进行中期队列分析，2022年下半年确定最大耐受剂量，2023-2024年首次患者入组Phase 2B/3[6] - PCS11T Pre-IND针对小细胞肺癌、结直肠癌的CMO正在评估中，预计完成IND支持性研究，2023年上半年提交Phase 1B IND[6] PCS499 (uNL) - 中度至重度溃疡的自然完全愈合在发病后1-2年内发生在不到5%的患者中[9] - 美国约有22,000-55,000名uNL患者[10] - uNL的美国市场潜力约为每年10亿美元的总销售额[10] PCS12852 (Gastroparesis) - 美国中度至重度胃轻瘫的患病率据报道超过20万至超过150万患者[29] - 美国市场潜力为5亿美元至超过15亿美元[29] PCS3117 (Pancreatic and Lung Cancer) - 55%-85%的患者对吉西他滨具有内在耐药性或获得耐药性[31] - PCS3117治疗患者的美国最大总销售额约为10亿美元[31] PCS6422 (Colorectal and Breast Cancer) - 结直肠癌：美国每年新增患者超过145,000人，全球共有超过180万结直肠癌患者；目前，超过45%的新结直肠癌患者接受卡培他滨治疗[35] - 结直肠癌的美国市场潜力约为10亿美元[35]

Processa Pharmaceuticals, Inc. (NASDAQ:PCSA) Q2 2021 Earnings Conference Call August 12, 2021 5:30 PM ET Company Participants James Stanker - Chief Financial Officer David Young - Chief Executive Officer Conference Call Participants François Brisebois - Oppenheimer & Co. Inc. Aydin Huseynov - The Benchmark Company, LLC Robin Garner - Craig-Hallum Capital Group LLC Operator Greetings and welcome to Processa Pharmaceuticals Second Quarter 2021 Earnings Conference Call and Corporate Update. At this time, all p ...

PART 1: FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=ITEM%201%3A%20FINANCIAL%20STATEMENTS) The unaudited statements show increased assets to $31.1 million, a higher net loss of $5.3 million, and $9.9 million raised from financing [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $31.1 million driven by cash, while stockholders' equity increased to $29.2 million Balance Sheet Highlights (Unaudited) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $20,831,195 | $15,416,224 | | Total Current Assets | $22,565,726 | $16,202,686 | | Total Assets | $31,137,959 | $25,214,389 | | **Liabilities & Equity** | | | | Total Current Liabilities | $1,161,177 | $1,220,952 | | Total Liabilities | $1,896,267 | $2,274,911 | | Total Stockholders' Equity | $29,241,692 | $22,939,478 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company's net loss widened to $5.3 million for the six months ended June 30, 2021, due to higher operating expenses Statement of Operations Summary (Unaudited) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Research and development expenses | $3,086,401 | $928,855 | | General and administrative expenses | $2,051,073 | $859,255 | | Operating Loss | ($5,653,104) | ($1,788,110) | | Net Loss | ($5,256,523) | ($1,607,750) | | Net Loss per Share (Basic & Diluted) | ($0.35) | ($0.29) | [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity rose to $29.2 million, primarily from a $9.9 million private placement offsetting the net loss - In the first six months of 2021, the company issued 1,321,132 shares in a private placement, raising **net proceeds of $9,875,550**[14](index=14&type=chunk) - Total stockholders' equity increased to **$29,241,692** as of June 30, 2021, up from $22,939,478 at the start of the year[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations increased to $4.4 million, while financing activities provided $9.9 million in cash Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,437,494) | ($897,029) | | Net cash provided by financing activities | $9,852,465 | $658,147 | | Net Increase (Decrease) in Cash | $5,414,971 | ($238,882) | | Cash and Cash Equivalents – End of Period | $20,831,195 | $452,654 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's drug pipeline, a new license agreement, a $9.9 million private placement, and PPP loan forgiveness - The company is a clinical-stage biopharmaceutical company with **five drugs in development**: PCS499, PCS12852, PCS3117, PCS6422, and PCS11T[19](index=19&type=chunk) - On June 16, 2021, the company executed a license agreement with Ocuphire Pharma, Inc for PCS3117, issuing **44,689 shares of common stock** and paying **$200,000 in cash**[38](index=38&type=chunk)[39](index=39&type=chunk) - The company has an accumulated deficit of approximately **$30.7 million** as of June 30, 2021, but believes its cash balance is adequate to fund operations well into 2023[23](index=23&type=chunk) - In February 2021, the company received **full forgiveness for its $162,459 Paycheck Protection Program (PPP) loan**[49](index=49&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses its clinical-stage drug pipeline, increased R&D and G&A expenses, and sufficient liquidity through 2023 [Overview and Drug Pipeline](index=16&type=section&id=Overview%20and%20Drug%20Pipeline) The company is advancing a five-drug pipeline, with two candidates recently enrolling patients in Phase 2B and 1B trials - The company's strategy is to develop drugs that have already shown some clinical proof-of-concept, targeting indications where the **FDA might allow for a single pivotal study**[64](index=64&type=chunk)[66](index=66&type=chunk) Drug Pipeline and Key Milestones | Drug | Indication | Current Phase | Key Milestones | | :--- | :--- | :--- | :--- | | PCS499 | Ulcerative Necrobiosis Lipoidica | Phase 2B | First patient enrolled May 2021; Interim analysis expected 1H'22 | | PCS12852 | Gastroparesis | Pre-Phase 2A | IND submission planned for Q3'21; Phase 2A trial to begin 1H'22 | | PCS3117 | Pancreatic, Non-Small Cell Lung Cancer | Pre-Phase 2B | Licensed June 2021; Biomarker assay development ongoing; Phase 2B to start 2H'22 | | PCS6422 | GI Tract Tumors | Phase 1B | First patient enrolled August 2, 2021; MTD determination expected 2H'22 | | PCS11T | Various Cancers | Pre-clinical | IND submission planned for 2H'22 or 1H'23 | [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Net loss increased to $5.3 million in the first half of 2021, driven by higher R&D and G&A expenses Comparison of Operating Expenses (Six Months Ended June 30) | Expense Category | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Research and development | $3,086,401 | $928,855 | +$2,157,546 | | Acquisition of in-process R&D | $515,630 | $0 | +$515,630 | | General and administrative | $2,051,073 | $859,255 | +$1,191,818 | - The increase in R&D expenses was primarily due to costs associated with commencing the **Phase 2B trial for PCS499** and the **Phase 1B trial for PCS6422**[110](index=110&type=chunk)[111](index=111&type=chunk) - The increase in G&A expenses was mainly due to higher **professional fees ($619,768)** and **payroll-related costs ($669,081)**, including a significant increase in stock-based compensation[118](index=118&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity, bolstered by a $9.9 million private placement, is deemed sufficient to fund operations into 2023 - On February 24, 2021, the company closed a private placement for gross proceeds of $10.2 million, resulting in **net proceeds of $9.9 million**[127](index=127&type=chunk) - The company had **$20,831,195 in cash** as of June 30, 2021, and believes this is adequate to fund operations well into 2023[127](index=127&type=chunk)[128](index=128&type=chunk) - Net cash used in operating activities increased to **$4.4 million** for the first six months of 2021, up from $0.9 million in the same period of 2020[123](index=123&type=chunk)[124](index=124&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section is not applicable as the company qualifies as a smaller reporting company - Item 3 is **not applicable** to the company as it qualifies as a smaller reporting company[138](index=138&type=chunk) [Controls and Procedures](index=29&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were ineffective as of June 30, 2021, due to ongoing material weaknesses - Management concluded that **disclosure controls and procedures were not effective** as of the end of the reporting period[139](index=139&type=chunk) - **Material weaknesses** identified in the 2020 Form 10-K, including inadequate segregation of duties, continued to be present at June 30, 2021[140](index=140&type=chunk) - Remediation actions have begun, including implementing changes to cash disbursement controls like a **central accounts payable email** and an **electronic invoice approval process**[141](index=141&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=30&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings - As of the reporting date, the company is **not involved in any material legal proceedings**[143](index=143&type=chunk) [Risk Factors](index=30&type=section&id=ITEM%201A.%20RISK%20FACTORS) No material changes have been made to the risk factors disclosed in the 2020 Annual Report on Form 10-K - **No material changes** have occurred to the risk factors as described in the Annual Report on Form 10-K for the year ended December 31, 2020[144](index=144&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company issued 44,689 shares of common stock in a private transaction exempt from registration - On June 16, 2021, the company issued **44,689 shares of common stock** to Ocuphire Pharma, Inc in a transaction exempt from registration requirements[145](index=145&type=chunk) [Defaults Upon Senior Securities](index=30&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reports no defaults upon its senior securities - **None**[149](index=149&type=chunk) [Mine Safety Disclosures](index=30&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section is not applicable to the company's operations - **Not applicable**[150](index=150&type=chunk) [Other Information](index=31&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No other information was required to be disclosed during the period - **None**[151](index=151&type=chunk) [Exhibits](index=31&type=section&id=ITEM%206.%20EXHIBITS) The report lists filed exhibits, including a key license agreement and officer certifications - Exhibits filed with the report include the **Ocuphire Pharma license agreement**, CEO/CFO certifications, and XBRL data[152](index=152&type=chunk)

LD Micro Invitational June 9, 2021 David Young, PharmD, PhD Chairman and CEO | --- | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ...

Financial Data and Key Metrics Changes - The company reported a net loss of $2.1 million or $0.14 per share for Q1 2021, compared to a net loss of $874,000 or $0.16 per share for the same period in 2020, indicating an increase in net loss primarily due to higher clinical trial costs [7] - Net cash used in operating activities increased by $1.7 million to $2.2 million in Q1 2021 compared to Q1 2020, attributed to costs related to clinical trials [8] - Research and development expenses totaled $1.5 million in Q1 2021, up from $502,000 in Q1 2020, reflecting increased trial preparations [10] - General and administrative expenses rose to $717,000 in Q1 2021 from $484,000 in Q1 2020, with $308,000 allocated to non-cash compensation costs [11] Business Line Data and Key Metrics Changes - The company is actively working on four drugs: PCS6422 for metastatic colorectal cancer, PCS499 for ulcerative necrobiosis lipoidica, 11T for cancer, and 12852 for gastroparesis, each with significant market potential [23] - PCS6422 is in Phase 1b trials, while PCS499 is in Phase 2b trials, with both drugs targeting large markets exceeding $1 billion [23][27] Market Data and Key Metrics Changes - The potential market for PCS6422, when combined with capecitabine, is estimated to be between $700 million to $1.5 billion for metastatic colorectal cancer, with broader applications potentially leading to multiple billions [27] - PCS499 has a potential market of $600 million to $1.4 billion, as it targets a condition with no approved treatments [33] Company Strategy and Development Direction - The company aims to develop drugs with a high return using a derisked approach, focusing on unmet medical needs and competitive advantages [18][19] - The strategy includes leveraging previous work on drugs to streamline the approval process and ensuring capital efficiency [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving clinical development goals and anticipates increased cash burn as trials progress [72] - The company expects to enroll the first patient in the PCS499 trial within 10 to 45 days and anticipates significant milestones over the next six months [40] Other Important Information - The company raised $10.2 million in a private offering in February 2021, providing additional cash to support studies and overhead through 2023 [9][17] - The company plans to hire additional staff to support drug development and corporate requirements over the next 12 months [17] Q&A Session Summary Question: Update on clinical sites for 6422 and 499 - Management confirmed five U.S. sites for PCS499 and plans to add three to four more, while expecting four to five sites for PCS6422 [46][47] Question: Data expected from interim analysis - For PCS6422, the interim analysis will focus on confirming the dosing regimen and tolerability, while for PCS499, the expectation is to see differences between treated and placebo groups [50][51] Question: Competing drugs for PCS499 - Management discussed off-label drugs like topical steroids and pentoxifylline, noting mixed results and side effects associated with current treatments [66][68] Question: Financial burn rate expectations - Management expects the cash burn rate to increase as clinical trials commence, with some of the current burn attributed to upfront costs for CROs [72][73] Question: Future milestones and updates - Management indicated that updates on patient enrollment and any serious adverse events will be provided in future calls, with the possibility of interim results by early 2022 [76][78]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number 333-184948 Processa Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Indicate by check mar ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2020 or [ ] Transitional Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter peri ...

PART 1: FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=ITEM%201%3A%20FINANCIAL%20STATEMENTS) The company reported a net loss of **$4.7 million** for the nine months ended September 30, 2020, with total assets decreasing and liabilities increasing, while a subsequent **$17.1 million** public offering significantly improved liquidity [Condensed Consolidated Balance Sheets](index=4&type=section&id=Processa%20Pharmaceuticals%2C%20Inc.%20Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$9.6 million** by September 30, 2020, from **$10.9 million** at year-end 2019, while total liabilities increased to **$4.1 million**, leading to a decline in stockholders' equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2020 ($) | December 31, 2019 ($) | | :--- | :--- | :--- | | **Total Current Assets** | $375,888 | $1,007,141 | | **Total Assets** | **$9,589,176** | **$10,883,134** | | **Total Current Liabilities** | $2,657,872 | $1,191,564 | | **Total Liabilities** | **$4,061,947** | **$2,870,584** | | **Total Stockholders' Equity** | **$5,527,229** | **$8,012,550** | - Subsequent to the quarter end, on October 6, 2020, the company closed an underwritten public offering, raising net proceeds of approximately **$17.1 million**[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Processa%20Pharmaceuticals%2C%20Inc.%20Condensed%20Consolidated%20Statements%20of%20Operations) The net loss for the nine months ended September 30, 2020, significantly increased to **$4.68 million** from **$2.58 million** in the prior year, primarily due to a **$2.0 million** expense for in-process R&D acquisition Statement of Operations Summary (Unaudited) | Metric | Nine Months Ended Sep 30, 2020 ($) | Nine Months Ended Sep 30, 2019 ($) | | :--- | :--- | :--- | | Research and development expenses | $1,461,416 | $1,804,169 | | Acquisition of in-process R&D | $2,000,000 | $0 | | General and administrative expenses | $1,282,239 | $1,219,329 | | **Operating Loss** | **($4,743,655)** | **($3,023,498)** | | **Net Loss** | **($4,679,035)** | **($2,583,433)** | | **Net Loss per Share** | **($0.84)** | **($0.47)** | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Processa%20Pharmaceuticals%2C%20Inc.%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity decreased from **$8.01 million** to **$5.53 million** by September 30, 2020, primarily due to the **$4.68 million** net loss, partially offset by **$2.0 million** in stock issued for a license and **$0.36 million** in stock-based compensation - For the nine months ended September 30, 2020, total stockholders' equity decreased by **$2,485,321**, from **$8,012,550** to **$5,527,229**[15](index=15&type=chunk) - Key non-cash equity activities included issuing **250,000 shares** valued at **$2.0 million** for the Yuhan license agreement and recognizing **$357,039** in stock-based compensation[15](index=15&type=chunk)[69](index=69&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Processa%20Pharmaceuticals%2C%20Inc.%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities decreased to **$0.87 million** for the nine months ended September 30, 2020, while financing activities provided **$0.50 million**, resulting in a **$0.37 million** overall decrease in cash and cash equivalents Cash Flow Summary (Unaudited) | Activity | Nine Months Ended Sep 30, 2020 ($) | Nine Months Ended Sep 30, 2019 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($867,839) | ($2,136,659) | | Net cash provided by financing activities | $501,731 | $900,000 | | **Net Decrease in Cash** | **($366,108)** | **($1,236,659)** | | **Cash and Cash Equivalents – End of Period** | **$325,428** | **$504,302** | - A significant non-cash activity was the issuance of **$2.0 million** in common stock for the acquisition of in-process research and development related to the Yuhan License Agreement[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's drug development focus, including lead candidate **PCS499** and newly licensed assets, highlighting key financial events such as license acquisitions, a **$700,000** line of credit draw, a **$162,459** PPP loan, and a subsequent **$17.1 million** public offering expected to fund operations into Q4 2022 - The lead product, **PCS499**, has completed the patient portion of its **Phase 2A** trial for Necrobiosis Lipoidica (NL), and a **Phase 2B** trial is planned to begin in **2021**[20](index=20&type=chunk)[27](index=27&type=chunk) - In **Q3 2020**, the company acquired an exclusive license for **PCS12852** from Yuhan Corporation for **$2 million** in stock, which was immediately expensed as in-process R&D[28](index=28&type=chunk)[29](index=29&type=chunk) - Contingent license agreements for **PCS6422** (from Elion) and **PCS11T** (from Aposense) were executed, with conditions met subsequent to the quarter-end following a successful public offering and Nasdaq up-listing on **October 6, 2020**[34](index=34&type=chunk)[42](index=42&type=chunk)[96](index=96&type=chunk)[91](index=91&type=chunk) - On **October 6, 2020**, the company closed a public offering with net proceeds of approximately **$17.1 million**, which is expected to fund operations into the **fourth quarter of 2022**[50](index=50&type=chunk)[82](index=82&type=chunk)[106](index=106&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's clinical-stage focus and in-licensing strategy, noting a net loss increase to **$4.7 million** for the nine months ended September 30, 2020, primarily due to a **$2.0 million** R&D acquisition, with a subsequent **$17.1 million** public offering improving liquidity into Q4 2022 [Overview and Strategy](index=23&type=section&id=Overview%20and%20Strategy) The company, a clinical-stage biopharmaceutical firm, focuses on in-licensing drugs with existing clinical evidence to de-risk development, with its portfolio including lead candidate **PCS499** and newly acquired assets **PCS12852** and **PCS6422** - The company's strategy is to in-license clinical-stage drugs that have some existing clinical evidence, aiming to achieve significant clinical milestones within **2-4 years**[111](index=111&type=chunk)[112](index=112&type=chunk)[118](index=118&type=chunk) - The **Phase 2A** trial for lead product **PCS499** in Necrobiosis Lipoidica (NL) is complete, with a randomized, placebo-controlled **Phase 2B** trial planned to begin recruiting in **2021**[110](index=110&type=chunk)[122](index=122&type=chunk) - In **Q3 2020**, the company acquired exclusive licenses for **PCS12852** from Yuhan Corporation and **PCS6422** from Elion Oncology, Inc. to expand its pipeline[123](index=123&type=chunk)[126](index=126&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) For the nine months ended September 30, 2020, R&D expenses decreased to **$1.5 million** but were offset by a new **$2.0 million** in-process R&D acquisition, leading to a widened net loss of **$4.7 million** from **$2.6 million** in the prior year Comparison of Operating Results (Nine Months Ended Sep 30) | Expense Category | 2020 ($) | 2019 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Research and development | $1,461,416 | $1,804,169 | ($342,573) | | Acquisition of in-process R&D | $2,000,000 | $0 | $2,000,000 | | General and administrative | $1,282,239 | $1,219,329 | $62,910 | | **Net Loss** | **($4,679,035)** | **($2,583,433)** | **($2,095,602)** | - The decrease in R&D expenses was due to lower costs for salaries and benefits (**$153,915 decrease**) and preclinical/clinical trials (**$188,838 decrease**)[137](index=137&type=chunk) - A **$2.0 million** expense was recorded for the acquisition of in-process research and development in connection with the Yuhan License Agreement[143](index=143&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity significantly improved with a **$17.1 million** public offering on **October 6, 2020**, expected to fund operations into Q4 2022, following prior funding from a **$700,000** related-party line of credit and a **$162,459** PPP loan - On **October 6, 2020**, the company closed an underwritten public offering with net proceeds of approximately **$17.1 million**[153](index=153&type=chunk)[155](index=155&type=chunk) - Management believes the post-offering funds are sufficient to meet capital requirements into the **fourth quarter of 2022**[155](index=155&type=chunk) - Prior to the offering, operations were funded by a **$700,000** line of credit from a related party (DKBK), a **$162,459** PPP loan, and deferral of certain employee salaries[156](index=156&type=chunk) Cash Flow Summary (Nine Months Ended Sep 30) | Activity | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($867,839) | ($2,136,659) | | Net cash provided by financing activities | $501,731 | $900,000 | [Critical Accounting Policies and Use of Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) The company confirms no changes to its critical accounting policies from its most recent Form 10-K, which require significant management estimates and judgments for areas like stock-based compensation and acquired assets - There have been **no changes** in the company's critical accounting policies from its most recent Annual Report on Form 10-K[168](index=168&type=chunk) - The preparation of financial statements requires management to make **estimates and judgments** that affect reported amounts of assets, liabilities, revenues, and expenses[166](index=166&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section is not applicable as the company qualifies as a smaller reporting company - As a **smaller reporting company**, Processa Pharmaceuticals is not required to provide this information[170](index=170&type=chunk) [Controls and Procedures](index=32&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were **not effective** as of September 30, 2020, due to ongoing material weaknesses like inadequate segregation of duties, with remediation efforts underway - Management concluded that disclosure controls and procedures were **not effective** as of **September 30, 2020**[171](index=171&type=chunk) - Ongoing material weaknesses include **inadequate segregation of duties** and **insufficient documentation** of policies and procedures for financial reporting[172](index=172&type=chunk) - The company is continuing to take **remediation actions** to rectify these control deficiencies[174](index=174&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=33&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently a party to any material legal proceedings - The company is **not currently a party** to any **material legal proceedings**[176](index=176&type=chunk) [Risk Factors](index=33&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company highlights significant risks, including potential disruptions from the **COVID-19 pandemic**, the uncertain forgiveness of its **$162,459 PPP loan**, and the risk of **in-license agreement termination** due to unmet milestones - The **COVID-19 pandemic** poses a **significant risk** of disrupting operations, clinical studies, and access to capital[178](index=178&type=chunk) - The company received a **$162,459 PPP loan** in **May 2020**, which is subject to review and may **not be fully forgiven**[179](index=179&type=chunk) - In-license agreements are subject to **termination** if the company breaches **material terms**, including failure to meet **due diligence milestones** for product development[182](index=182&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) In September 2020, the company issued **250,000 shares** of common stock to Yuhan Corporation as part of a license agreement, exempt from registration under Section 4(a)(2) of the Securities Act - In **September 2020**, the company issued **250,000 shares** of common stock to Yuhan Corporation in connection with a license agreement, exempt from registration under **Section 4(a)(2)** of the Securities Act[183](index=183&type=chunk) [Defaults Upon Senior Securities](index=34&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reports no defaults upon its senior securities during the period - None reported[186](index=186&type=chunk) [Mine Safety Disclosures](index=35&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[187](index=187&type=chunk) [Other Information](index=35&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company reports no other information for the period - None reported[188](index=188&type=chunk) [Exhibits](index=35&type=section&id=ITEM%206.%20EXHIBITS) The report lists all exhibits filed with the Form 10-Q, including key license agreements with Yuhan Corporation and Elion Oncology, Inc., and Sarbanes-Oxley certifications - Filed exhibits include license agreements with **Yuhan Corporation** and **Elion Oncology, Inc.**, as well as required officer certifications under **Sarbanes-Oxley Sections 302 and 906**[189](index=189&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission File Number 333-184948 Processa Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Delaware 45-1539785 (S ...